The Vertical Multinational Enterprise and International Trade

Denise Konan

No 199601, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: By explicitly modeling distortion in the intermediate goods sector, I develop a model of an endogenous vertical multinational enterprise. Firms invest abroad to lower cost of multi-stage production. The implications for international trade and investment differ markedly from the conventional wisdom of multinationals. Particularly, intra-firm trade in intermediates implies vertical investment complements rather than substitutes for trade. The decision to become a multinational depends on the level of foreign factor prices, nature of competition with foreign suppliers, transport, tariff, and subsidiary plant costs. Marginal change in tariff may result in welfare jumps as firm configuration shifts.

Keywords: multinational enterprise; vertical integration (search for similar items in EconPapers)
JEL-codes: F12 F23 L11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1996
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Citations: View citations in EconPapers (1)

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Journal Article: The Vertical Multinational Enterprise and International Trade (2000)
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