Working Paper: CEPR ID: DP5592
Authors: Christian Mugele; Monika Schnitzer
Abstract: We develop a model in which multinational investors decide about the modes of organization, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous effect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads to more integration.
Keywords: distance; joint ventures; multinational firms; ownership structure; technology spillovers
JEL Codes: D23; F23; L22; L23; L24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| production-intensive sectors (O14) | likelihood of foreign engagement (F23) |
| distance (R12) | likelihood of horizontal investments (F23) |
| globalization (F60) | greater integration of foreign activities (F15) |
| technology spillovers (O33) | likelihood of joint ventures (L24) |
| distance (R12) | agency costs (G34) |