Working Paper: CEPR ID: DP14452
Authors: Ronald Davies; James R. Markusen
Abstract: The structure of a multinational firm, that is how its affiliates relate to one another, is critical for understanding where multinationals locate, how policy affects them, and their resilience to localized shocks. Here, we review the two main structures: horizontal investments which replicate activities across borders, and vertical investments which fragment activities across countries. In addition, we use data (primarily from the US) to examine which of these structures seems to dominate the data. This includes a novel use of measures of global value-chain positioning of a country's industries. In each case, the data suggests a dominant role for horizontal investment. We conclude with a discussion of the challenge that intangibles play in multinational data and point towards potentially fertile areas for future research.
Keywords: horizontal multinationals; vertical multinationals; replication; fragmentation
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multinational firm structure (F23) | resilience to localized shocks (F69) |
| horizontal FDI (F23) | resilience to localized shocks (F69) |
| horizontal FDI (F23) | operational replication across borders (C59) |
| horizontal FDI (F23) | majority of investments between developed nations (F21) |
| intangible assets (O34) | performance of foreign affiliates (F23) |
| multinational strategies (F23) | local labor markets (J49) |
| multinational strategies (F23) | consumer access (D16) |