ECONOMIC INTEGRATION AND AGGLOMERATION OF MULTINATIONAL PRODUCTION WITH TRANSFER PRICING

Hayato Kato and Hirofumi Okoshi

International Economic Review, 2022, vol. 63, issue 3, 1325-1355

Abstract: Do low corporate taxes always favor multinational production over economic integration? We propose a two‐country model in which multinationals choose the locations of production plants and foreign distribution affiliates and shift profits between them through transfer prices. With high trade costs, plants are concentrated in the low‐tax country; surprisingly, this pattern reverses with low trade costs. Indeed, economic integration has a nonmonotonic impact: Falling trade costs first decrease and then increase the plant share in the high‐tax country, which we empirically confirm. Moreover, allowing for transfer pricing makes tax competition tougher and international coordination on transfer‐pricing regulation can be beneficial.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/iere.12569

Related works:
Working Paper: Economic Integration and Agglomeration of Multinational Production with Transfer Pricing (2022)
Working Paper: Economic Integration and Agglomeration of Multinational Production with Transfer Pricing (2022)
Working Paper: Economic Integration and Agglomeration of Multinational Production with Transfer Pricing (2021)
Working Paper: Economic Integration and Agglomeration of Multinational Production with Transfer Pricing (2021)
Working Paper: Economic Integration and Agglomeration of Multinational Production with Transfer Pricing (2021)
Working Paper: Economic Integration and Agglomeration of Multinational Production with Transfer Pricing (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:63:y:2022:i:3:p:1325-1355

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Michael O'Riordan and Dirk Krueger

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().