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Discriminating Among Alternative Theories of the Multinational Enterprise
Author(s) -
Markusen James R.,
Maskus Keith E.
Publication year - 2002
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 - 10.1111/1467-9396.00359
Subject(s) - multinational corporation , horizontal and vertical , foreign direct investment , economics , sample (material) , econometrics , general equilibrium theory , capital (architecture) , replicate , microeconomics , macroeconomics , mathematics , statistics , chemistry , geometry , archaeology , finance , chromatography , history
Recent theoretical developments have incorporated endogenous multinational firms into the general–equilibrium model of trade. One simple taxonomy separates the theory into “vertical” models, in which firms geographically separate activities by stages of production, and “horizontal” models, in which multiplant firms duplicate roughly the same activities in many countries. The authors nest a horizontal and a vertical model within a hybrid (unrestricted) “knowledge–capital model” and estimate the specifications with data on US foreign direct investment activity. In the nested econometric tests, the data sample cannot distinguish statistically between the unrestricted model and the restricted horizontal model, indicating that the latter captures virtually all of the determinants of FDI. The tests overwhelmingly reject the vertical model.