Optimal Integration: Strategies for the Multinational Firm

Gene Grossman (), Elhanan Helpman and Adam Szeidl

No 4477, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine integration strategies of multinational firms that face a rich array of choices of international organization. Each firm in an industry must provide headquarter services from its home country, but can produce its intermediate inputs and conduct assembly operations in one or more of three locations. We study the equilibrium choices of firms that differ in productivity levels, focusing on the role that industry characteristics such as the fixed costs of foreign subsidiaries, the cost of transporting intermediate and final goods, and the regional composition of the consumer market play in determining the optimal integration strategies. In the process, we identify three distinct ‘complementarities’ that link firms’ foreign investment decisions for different stages of production.

Keywords: direct foreign investment; intra-firm trade; multinational corporations; vertical integration (search for similar items in EconPapers)
JEL-codes: F12 F23 L22 (search for similar items in EconPapers)
Date: Written
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Related works:
Working Paper: Optimal Integration Strategies for the Multinational Firm (2003)
Working Paper: Optimal Integration Strategies for the Multinational Firm (2003)
Working Paper: Optimal Integration Strategies for the Multinational Firm (2003)
Journal Article: Optimal integration strategies for the multinational firm (2006)
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