A quantitative approach to multinational production

Natalia Ramondo

Journal of International Economics, 2014, vol. 93, issue 1, 108-122

Abstract: I examine new data on the number and revenues of foreign affiliates of multinational firms across a large number of country pairs. The data shed light on the behavior of the intensive and extensive margins of multinational production (MP). To capture the patterns observed in the data, I build and calibrate a multi-country general-equilibrium model of MP that combines a Lucas (1978) span-of-control with an Eaton and Kortum (2002) type model, and includes both fixed and variable costs of opening affiliates abroad. I use the calibrated model to calculate the gains that a country would experience from liberalizing access to foreign firms. Those calculations suggest that the welfare losses of closing up to foreign firms would be around 4%, while the gains of liberalizing access to foreign firms would be large, particularly if the variable – rather than the fixed – component of MP costs were lowered.

Keywords: Multinational production; Foreign direct investment; Welfare gains; Gravity; Calibration (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (77)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:93:y:2014:i:1:p:108-122

DOI: 10.1016/j.jinteco.2014.01.004

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