Working Paper: NBER ID: w18775
Authors: Pol Antràs; Stephen Yeaple
Abstract: 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.
Keywords: Multinational firms; International trade; Foreign direct investment; Productivity; Trade costs
JEL Codes: D2; D21; D22; D23; F1; F12; F2; F23; F61; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high transportation costs (L91) | preference for local production through foreign affiliates (FDI) (F23) |
| high tariffs (F19) | preference for local production through foreign affiliates (FDI) (F23) |
| larger size of country's economy (O51) | likelihood of attracting more FDI (F23) |
| small factor price differences (F16) | less likelihood of engaging in FDI (F23) |
| cross-border mergers and acquisitions (F23) | share of FDI (F23) |
| productivity differences among firms (L25) | sorting behavior towards FDI rather than exporting (F23) |