Firm dynamics and multinational activity

Adam Hal Spencer

Chapter 13 in Elgar Encyclopedia of International Trade, 2026, pp 58-63 from Edward Elgar Publishing

Abstract: This entry reviews recent developments in the literature on firm dynamics with a focus on multinational activity. It synthesizes empirical evidence on how firms evolve from domestic producers to exporters and, eventually, multinational enterprises. The discussion highlights key patterns in firm life cycles, the role of exporting as a stepping stone to foreign direct investment (FDI), and the frictions that influence these transitions. Particular attention is given to how these empirical facts inform the structure and calibration of dynamic models, including those featuring idiosyncratic and aggregate uncertainty, financial frictions, and labor market power. The entry also assesses the implications of incorporating multinational choice into policy counterfactuals, including trade cost reductions and tax reforms. By bridging data with theory, the review shows that modeling multinational options is crucial for accurately capturing the long-run effects of openness reforms. Promising avenues for future research in vertical FDI and large incumbent firms are also outlined.

Keywords: Firm lifecycle; Extensive margin; Foreign direct investment; Structural modeling; Openness counterfactuals; Transition dynamics (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035327492
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