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Adapting the Knowledge‐capital Model of the Multinational Enterprise to Trade and Investment in Business Services
Author(s) -
Markusen James R.,
Strand Bridget
Publication year - 2009
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2009.01155.x
Subject(s) - multinational corporation , production (economics) , foreign direct investment , investment (military) , economics , trade in services , goods and services , welfare , industrial organization , service (business) , capital good , trade barrier , international trade , business , capital (architecture) , international economics , microeconomics , market economy , finance , macroeconomics , economy , politics , political science , law , history , archaeology
At some conceptual level, trade in goods and services are not that much different. However, the speed at which trade and foreign investment in services is growing, along with the fact that the barriers to these activities are quite different from those for trade in goods, prompts us to take a more careful look. The paper begins with a general discussion about the various policies and technological constraints that impact foreign trade and the establishment of foreign commercial presence in intermediate business services. We then discuss which characteristics an accurate modelling approach must capture. Following that, we develop a model that allows for different regimes of trade and/or foreign affiliate production in services using Markusen's knowledge‐capital model. Simulations show that the pattern of service firm headquarters and office locations can differ considerably depending on whether it is trade, investment, or both that are either liberalised or become technologically feasible. Our results find that the welfare and factor‐price consequences are quite similar across the different scenarios.