THE MULTINATIONAL FIRM

Wilfred J. Ethier

Chapter 8 in The Floating World:Issues in International Trade Theory, 2014, pp 133-161 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Direct investment is incorporated into a simple general equilibrium model of international trade. The analysis focuses on an attempt to endogenize the internalization decision. It is argued that a reasonable approach assumes that arm's length contracts must be “simple” so that “complex” arrangements require internalization. The model relates direct investment to the degree of underlying uncertainty and to fundamental trade determinants, such as relative factor endowments. The behavior of the model contrasts sharply with that of the Markusen-Helpman model, which takes internalization for granted.

Keywords: International Trade; Scale Economies; Factor Endowments; Political Economy of Trade Policy; Economic Integration (search for similar items in EconPapers)
Date: 2014
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