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The Vertical Multinational Enterprise and International Trade
Author(s) -
Konan Denise Eby
Publication year - 2000
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00209
Subject(s) - multinational corporation , economics , distortion (music) , foreign direct investment , marginal cost , investment (military) , international trade , tariff , international economics , competition (biology) , welfare , production (economics) , industrial organization , final good , microeconomics , market economy , macroeconomics , amplifier , ecology , cmos , electronic engineering , politics , biology , political science , law , engineering , finance
This paper analyzes an endogenous vertical multinational enterprise by explicitly modeling a distortion in the intermediate goods sector. Firms invest abroad to lower the cost of multistage production. The implications for international trade and investment differ markedly from the conventional wisdom of multinationals. Particularly, intrafirm trade in intermediates implies vertical investment complements rather than substitutes for trade. The decision to become a multinational depends on the level on foreign factor prices, the nature of the competition with foreign suppliers, transport, tariffs, and subsidiary plant costs. Marginal change in tariff may result in unintended welfare jumps as firm configuration shifts.