Friday, 15 February 2013

A new paper on reviwing what we know about multinational firms

Multinational firms are an obvious part of the economic landscape, and have been for a long time, perhaps the oldest still existing multinational firm is the Catholic Church having emerged in its official capacity as a result of the Edict of Milan in A.D. 313. There is a new paper out that reviews the literature on the multinational firm: Multinational Firms and the Structure of International Trade by Pol AntrĂ s and Stephen R.Yeaple, NBER Working Paper No. 18775, February 2013.

The abstract reads,
This article reviews the state of the international trade literature on multinational firms. This literature addresses three main questions. First, why do some firms operate in more than one country while others do not? Second, what determines in which countries production facilities are located? Finally, why do firms own foreign facilities rather than simply contract with local producers or distributors? We organize our exposition of the trade literature on multinational firms around the workhorse monopolistic competition model with constant-elasticity-of-substitution (CES) preferences. On the theoretical side, we review alternative ways to introduce multinational activity into this unifying framework, illustrating some key mechanisms emphasized in the literature. On the empirical side, we discuss the key studies and provide updated empirical results and further robustness tests using new sources of data.
Some people seem to see multinationals as a great evil but they don't seem to have ever asked why such firms exist and why is there structure what it is. A quick read of this paper may help them.

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