Simulating heterogeneous multinational firms

Arita Shawn and Kiyoyasu Tanaka

No 296, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper develops a micro-simulation framework for multinational entry and sales activities across countries. The model is based on Eaton, Kortum, and Kramarz's (2010) quantitative trade model adapted towards multinational production. Using micro data on Japanese manufacturing firms, we first stylize the empirical regularities of multinational entry and sales activity and estimate the model's structural parameters with simulated method of moments. We then demonstrate that our adapted model is able to replicate important dimensions of the in-sample moments conditioned in our estimation strategy. Importantly, it is able to replicate activity under an economic period with a far different level of FDI barriers than was conditioned upon in our estimation sample. Overall, our research highlights the richness of the simulation framework for performing counterfactual analysis of various FDI policies.

Keywords: International business enterprises; Foreign investments; Multinational firms; FDI; Firm heterogeneity; Simulation; Model validation (search for similar items in EconPapers)
JEL-codes: F10 F23 L25 M16 R12 R30 (search for similar items in EconPapers)
Date: 2011-04-01
New Economics Papers: this item is included in nep-cmp and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 296. 2011-04-01

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https://ir.ide.go.jp/record/37877/files/IDP000296_001.pdf First version, 2011 (application/pdf)

Related works:
Working Paper: Simulating Heterogeneous Multinational Firms (2011)
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