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International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium

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International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide3

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide4

International Trade & the World Economy;  Charles van Marrewijk

Introduction

Joseph Schumpeter (1883 - 1950)

slide5

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide6

International Trade & the World Economy;  Charles van Marrewijk

The size and structure of multinationals

slide7

International Trade & the World Economy;  Charles van Marrewijk

The size and structure of multinationals

slide8

International Trade & the World Economy;  Charles van Marrewijk

The size and structure of multinationals

slide9

International Trade & the World Economy;  Charles van Marrewijk

The size and structure of multinationals

slide10

International Trade & the World Economy;  Charles van Marrewijk

The size and structure of multinationals

slide11

International Trade & the World Economy;  Charles van Marrewijk

The size and structure of multinationals

slide12

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide17

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide18

International Trade & the World Economy;  Charles van Marrewijk

Explaining multinationals

  • Dunning’s OLI framework:
  • Ownership advantages
  • Location advantages
  • Internalization advantages
  • Empirical characteristics of multinationals:
  • high ratios of R&D relative to sales
  • employ large numbers of scientific, technical, and other 'white collar' workers as a percentage of their work force
  • high value of 'intangible' assets
  • associated with new and/or technically complex products
  • negatively associated with plant-level scale economies
  • associated with product-differentiation variables (e.g. advertising/sales)
  • A minimum or 'threshold' level of firm size seems to be important
  • Multinationals tend to be older, more established firms.
slide19

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide20

International Trade & the World Economy;  Charles van Marrewijk

Multinationals in general equilibrium

  • Markusen-Venables model
  • Perfect competition and CRS for food sector.
  • Imperfect competition and IRS for manufacturing sector
  • Production of manufactures characterized by
  • c - the (constant) marginal production costs in terms of labor
  • t - the amount of labor needed to transport one unit of manufactures from Austria to Bolivia, or vice versa.
  • F - the firm level fixed costs in terms of labor.
  • G - the plant level fixed costs in terms of labor.
slide21

International Trade & the World Economy;  Charles van Marrewijk

Headquarters

in Austria

Firm level

fixed costs FwA

+

Plant level

fixed costs GwA

Multi-plant

production?

yes

no

Plant level

fixed costs GwB

Multinationals in general equilibrium

Headquarter location

Headquarters

in Bolivia

Firm level

fixed costs FwB

+

Plant level

fixed costs GwB

Multi-plant

production?

yes

Plant level

fixed costs GwA

no

nA; national firm, headquarters in Austria

MC in A = cwA

MC in B = (c+t)wB

mA; multinational firm, headquarters in Austria

MC in A = cwA

MC in B = cwB

mB; multinational firm, headquarters in Bolivia

MC in A = cwA

MC in B = cwB

nB; national firm, headquarters in Bolivia

MC in A = (c+t)wA

MC in B = cwB

slide22

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide23

International Trade & the World Economy;  Charles van Marrewijk

Characterization of equilibrium

slide24

International Trade & the World Economy;  Charles van Marrewijk

Characterization of equilibrium

slide25

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide26

International Trade & the World Economy;  Charles van Marrewijk

Case study: hard disk drives

slide27

International Trade & the World Economy;  Charles van Marrewijk

Case study: hard disk drives

slide28

International Trade & the World Economy;  Charles van Marrewijk

CHAPTER 15; MULTINATIONALS

Introduction

The size and structure of multinationals

Foreign direct investment

Explaining multinationals

Multinationals in general equilibrium

Characterization of equilibrium

Case study: hard disk drives

Conclusions

slide29

International Trade & the World Economy;  Charles van Marrewijk

Conclusions

  • Multinationals are becoming increasingly important (w.r.t. production, investment, and trade)
  • Most multinationals in OECD countries
  • Most FDI horizontal acquisitions between OECD countries
  • Explaining multinationals
  • Descriptive OLI framework
  • Modern general equilibrium framework
  • Modern framework determines market structure endogenously; results confirm reasonably well with stylized facts (multinationals dominate if countries are more similar; national firms dominate if countries differ in size or relative endowment)