Working Paper: NBER ID: w10189
Authors: Gene M. Grossman; Elhanan Helpman; Adam Szeidl
Abstract: We examine integration strategies of multinational firms that face a rich array of choices of international organization. Each firm in an industry must provide headquarter services from its home country, produce intermediate inputs, and assemble the intermediate goods into final products. Both production of intermediate goods and assembly can be performed at home, in another Northern' country, in the low-wage South,' or in several of these locations. We study the equilibrium choices of firms that differ in productivity (and thus size), focusing on the role of industry characteristics such as the fixed costs of foreign subsidiaries, the cost of transporting intermediate and final goods, and the share of the consumer market that resides in the South in determining optimal integration strategies.
Keywords: No keywords provided
JEL Codes: F23; F12; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low productivity (O49) | prefer to conduct all activities at home (D13) |
| high productivity (O49) | perform all production activities in the low-wage south (L23) |
| intermediate productivity (O49) | separate production of intermediate goods from assembly operations (L23) |
| size of southern market (R12) | profitability of assembly in the south (L23) |
| fixed costs, transport costs, and market sizes (L11) | integration choices of firms (F12) |