Multinationals, intra-firm trade and FDI: A simple model

Theresa Carpenter ()
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Theresa Carpenter: IUHEI, The Graduate Institute of International Studies, Geneva

No 01-2005, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper models trade and FDI in a world consisting of two symmetric countries. Using a monopolistic competition model of international trade which includes positive trade costs and endogenous multinational firms, we introduce an intermediate good and allow firms to fragment production internationally. The result is that under certain conditions, identical countries engage in both intra-industry FDI and intra-industry, intra-firm trade. This result provides a theoretical explanation for a well-observed but little explained phenomenon in the overlap between the theory of international trade and the theory of multinational enterprises. Examination of welfare demonstrates that firms make location choices that happen to maximise consumer welfare.

Keywords: Multinationals; FDI; Intra-firm trade. (search for similar items in EconPapers)
Pages: 42
Date: 2005-05
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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