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Welfare and trade elasticity with multinational production
Author(s) -
Bombarda Pamela,
Marcassa Stefania
Publication year - 2020
Publication title -
the 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/twec.12850
Subject(s) - multinational corporation , counterfactual thinking , economics , welfare , production (economics) , elasticity (physics) , international trade , microeconomics , international economics , market economy , philosophy , materials science , finance , epistemology , composite material
We explore welfare properties in a firm heterogeneity model with multinational production and export. The presence of multinational production plays a crucial role in delivering a partial trade elasticity of total sales by exporters and affiliates that is no longer constant, and depends on both supply and demand parameters. We then analyse counterfactual scenarios. Multinational production with intra‐firm trade increases welfare gains by up to 4% with respect to a model with only export and no truncation. Multinational production à la Helpman et al. ( American Economic Review , 2004, 94 , 300) generates the largest welfare gains from liberalisation.