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The Structure of Multinational Firms' International Activities

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  • Ronald B. Davies
  • James R. Markusen

Abstract

The structure of a multinational firm, that is how its affiliates relate to one another, is critical for understanding where multinationals locate, how policy affects them, and their resilience to localized shocks. Here, we review the two main structures: horizontal investments which replicate activities across borders, and vertical investments which fragment activities across countries. In addition, we use data (primarily from the US) to examine which of these structures seems to dominate the data. This includes a novel use of measures of global value-chain positioning of a country's industries. In each case, the data suggests a dominant role for horizontal investment. We conclude with a discussion of the challenge that intangibles play in multinational data and point towards potentially fertile areas for future research.

Suggested Citation

  • Ronald B. Davies & James R. Markusen, 2020. "The Structure of Multinational Firms' International Activities," CESifo Working Paper Series 8150, CESifo.
    • Handle: RePEc:ces:ceswps:_8150
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    References listed on IDEAS

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    1. David L. Carr & James R. Markusen & Keith E. Maskus, 2021. "Estimating The Knowledge-Capital Model of the Multinational Enterprise," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 5, pages 95-110, World Scientific Publishing Co. Pte. Ltd..
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    5. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2021. "Export-Platform Foreign Direct Investment," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 6, pages 111-130, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Frey, Rainer & Goldbach, Stefan, 2021. "Benefits of internationalisation for acquirers and targets - But unevenly distributed," Discussion Papers 33/2021, Deutsche Bundesbank.

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    More about this item

    Keywords

    horizontal multinationals; vertical multinationals; replication; fragmentation;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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