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The Vertical Multinational Enterprise and International Trade

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  • Denise Eby Konan

Abstract

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.

Suggested Citation

  • Denise Eby Konan, 2000. "The Vertical Multinational Enterprise and International Trade," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 113-125, February.
    • Handle: RePEc:bla:reviec:v:8:y:2000:i:1:p:113-125
    DOI: 10.1111/1467-9396.00209
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    References listed on IDEAS

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    Cited by:

    1. Honkatukia, Juha & Kinnunen, Jouko & Marttila, Kimmo, 2009. "Anticipating the Regional Effects of an Ageing Population: A Dynamic CGE Analysis for Finland," Conference papers 331829, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc.
    3. Ashok Deo Bardhan & Subhrajit Guhathakurta, 2004. "Global Linkages of Subnational Regions: Coastal Exports and International Networks," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 225-236, April.
    4. Hu Xiaojuan & Su Yan, 2007. "The Impact of Tariff Policies on Imports of China’s Intermediate Goods," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 10(4), pages 335-341.
    5. Miller, Andrew D. & Langley, Suchada V. & Chambers, William, 2003. "Current Issues Affecting Trade And Trade Policy: An Annotated Literature Review," Working Papers 14606, International Agricultural Trade Research Consortium.
    6. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    7. Erdey, László, 2004. "A működőtőke-áramlás a telephelyválasztás elméletének tükrében [The flow of operating capital in the light of the theory of location choice]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 472-494.
    8. Hu Xiaojuan & Su Yan, 2007. "The Impact of Tariff Policies on Imports of China's Intermediate Goods," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 10(4), pages 335-341.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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