Working Paper: NBER ID: w29317
Authors: Elhanan Helpman; Benjamin C. Niswonger
Abstract: We develop a model of large multinational enterprises, each one producing a continuum of products. These outsized firms compete as oligopolists in a domestic and foreign market, facing competitive pressure from single-product firms that engage in monopolistic competition. The multinational enterprises invest in R&D in order to expand the span of their products and in foreign direct investment (FDI) in order to expand the range of products manufactured by their foreign affiliates. We study the dynamic evolution of these markets and characterize transition dynamics and steady states. In addition to the evolution of product spans, we characterize the evolution of prices, markups, market shares, and exports relative to subsidiary sales. Furthermore, we study comparative dynamics that result from changes in trade costs, R&D costs, the cost of FDI and productivity changes of the multinational firms.
Keywords: No keywords provided
JEL Codes: D43; F12; F23; L11; L13; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MNEs invest in R&D (O32) | expand product ranges (F61) |
| MNEs invest in FDI (F23) | enhance manufacturing capabilities abroad (F23) |
| increase in export costs (F10) | reduce prices charged by foreign subsidiaries (F23) |
| increase in export costs (F10) | reduce markups (D40) |
| increase in export costs (F10) | reduce foreign market shares (F23) |
| reduction in FDI costs (F23) | increase foreign market shares (F23) |
| reduction in FDI costs (F23) | increase prices (D49) |
| exports relative to subsidiary sales (F10) | labor productivity (J24) |