Multinational Firms: Reconciling Theory and Evidence

James Markusen and Keith Maskus

No 7163, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: An important component of Robert Lipsey's work has been his research on multinational firms, and his careful documentation of their behavior in terms of production and intra-firm trade. In this paper, we extend recent theory referred to as the knowledge-capital model', which simultaneously generates motives for both horizontal and vertical multinational production. We use this model to derive predictions about foreign affiliates' pattern of production for local markets versus production for exports as functions of country characteristics such as market sizes, size differences, and relative endowment differences. These predictions are then taken to data on affiliate production and trade. Results confirm several hypotheses. The ratio of production for export sales to production for local sale by affiliates of foreign multinationals depends negatively on market size, investment and trade costs in the host country, and positively on the relative skilled-labor abundance of the parent country (skilled-labor scarcity of the host country).

JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 1999-06
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80)

Published as With Robert C. Feenstra and William Zeile, published as "Accounting for Growth with New Inputs: Theory and Evidence", American Economic Review, Vol. 82, no. 2 (1992): 418-421.
Published as Multinational Firms: Reconciling Theory and Evidence , James R. Markusen, Keith E. Maskus. in Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey , Blomstrom and Goldberg. 2001

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