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Multinationals, Information Update, and Product Adaptation

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  • Shuai Xiaobing

Abstract

This paper develops a dynamic model of decision making by multinational firms. The firm chooses between exporting and producing abroad when it expands the market. Bayes learning is incorporated into this model in addition to fixed cost and transport cost Production in a foreign country gives the firm new information about the demand function. This information is applied to adjust the firm's expectation as well as output choice in the future. This process not only reduces the risk encountered by a firm in a foreign market, but also increases acceptance of the product which the firm manufactures. This paper concludes even if producing abroad loses money in the first period, the firm may still choose to set up plants in foreign countries rather than exporting, due to the dynamic information advantage associated with going multinational. [F23,F21]

Suggested Citation

  • Shuai Xiaobing, 2000. "Multinationals, Information Update, and Product Adaptation," International Economic Journal, Taylor & Francis Journals, vol. 14(2), pages 41-66.
    • Handle: RePEc:taf:intecj:v:14:y:2000:i:2:p:41-66
    DOI: 10.1080/10168730000000018
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    1. repec:bla:econom:v:46:y:1979:i:182:p:187-96 is not listed on IDEAS
    2. Wilfred J. Ethier & James R. Markusen, 2021. "Multinational firms, technology diffusion and trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 7, pages 131-158, World Scientific Publishing Co. Pte. Ltd..
    3. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    4. Wilfred J. Ethier, 1986. "The Multinational Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 805-833.
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    Cited by:

    1. Armando J. Garcia Pires, 2015. "Multinationals, R&D and Endogenous Productivity Asymmetries," International Economic Journal, Taylor & Francis Journals, vol. 29(1), pages 95-119, March.

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