Multinational Activity in a Macroeconomic Model of the Small Open Economy

Alkis Otto

No 26242, Discussion Paper Series from Hamburg Institute of International Economics

Abstract: We study the effects of FDI and increasing multinational activity utilizing a macroeconomic two-sector model of the small open economy with flexible exchange rates and perfect capital mobility. The focus is on horizontal greenfield investment and its impact on production, exchange rates, trade, and welfare. In the host country, an increase in multinational activity harms the established industries. Nevertheless it increases welfare. In the home country, an increase in multinational activity lowers domestic output of the established industries too and, thereby, decreases welfare.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 17
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ags:hwwadp:26242

DOI: 10.22004/ag.econ.26242

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