IDEAS home Printed from https://ideas.repec.org/p/hai/wpaper/199601.html
   My bibliography  Save this paper

The Vertical Multinational Enterprise and International Trade

Author

Listed:
  • Denise Eby Konan

Abstract

By explicitly modeling distortion in the intermediate goods sector, I develop a model of an endogenous vertical multinational enterprise. Firms invest abroad to lower cost of multi-stage production. The implications for international trade and investment differ markedly from the conventional wisdom of multinationals. Particularly, intra-firm trade in intermediates implies vertical investment complements rather than substitutes for trade. The decision to become a multinational depends on the level of foreign factor prices, nature of competition with foreign suppliers, transport, tariff, and subsidiary plant costs. Marginal change in tariff may result in welfare jumps as firm configuration shifts.

Suggested Citation

  • Denise Eby Konan, 1996. "The Vertical Multinational Enterprise and International Trade," Working Papers 199601, University of Hawaii at Manoa, Department of Economics.
  • Handle: RePEc:hai:wpaper:199601
    as

    Download full text from publisher

    File URL: http://www.economics.hawaii.edu/research/workingpapers/88-98/WP_96-1.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Spencer, Barbara J. & Jones, Ronald W., 1992. "Trade and protection in vertically related markets," Journal of International Economics, Elsevier, vol. 32(1-2), pages 31-55, February.
    2. Dani Rodrik & Chang-Ho Yoon, 1989. "Strategic Trade Policy When Domestic Firms Compete Against Vertically Integrated Rivals," NBER Working Papers 2916, National Bureau of Economic Research, Inc.
    3. Konan, Denise Eby, 1996. "Transfer Pricing and Strategic Taxation of Globally Joint Inputs," Review of International Economics, Wiley Blackwell, vol. 4(2), pages 202-210, June.
    4. Ignatius J. Horstmann & James R. Markusen, 2021. "Endogenous market structures in international trade (natura facit saltum)," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 2, pages 25-45, World Scientific Publishing Co. Pte. Ltd..
    5. James R. MARKUSEN, 2021. "Multinationals, Multi-Plant Economies, And The Gains From Trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 1, pages 3-24, World Scientific Publishing Co. Pte. Ltd..
    6. repec:bla:econom:v:56:y:1989:i:221:p:41-48 is not listed on IDEAS
    7. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    8. 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.
    9. Konan, Denise Eby, 1997. "Strategic taxation of the multinational enterprise: A new argument for double taxation," Journal of Public Economics, Elsevier, vol. 63(2), pages 301-309, January.
    10. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    11. Elhanan Helpman, 1985. "Multinational Corporations and Trade Structure," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 443-457.
    12. Ethier, Wilfred J. & Horn, Henrik, 1990. "Managerial control of international firms and patterns of direct investment," Journal of International Economics, Elsevier, vol. 28(1-2), pages 25-45, February.
    13. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. 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.
    4. 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.
    5. 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.
    6. 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.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joseph Francois & Douglas R. Nelson, 2000. "Victims of Progress: Economic Integration, Specialization, and Wages for Unskilled Labor," Tinbergen Institute Discussion Papers 00-065/2, Tinbergen Institute.
    2. Duranton, Gilles & Puga, Diego, 2005. "From sectoral to functional urban specialisation," Journal of Urban Economics, Elsevier, vol. 57(2), pages 343-370, March.
    3. 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.
    4. Eva Barteková & Thomas H. W Ziesemer, 2019. "The impact of electricity prices on foreign direct investment: evidence from the European Union," Applied Economics, Taylor & Francis Journals, vol. 51(11), pages 1183-1198, March.
    5. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    6. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    7. Salvador Barrios & Holger Görg & Eric Strobl, 2003. "Multinational Enterprises and New Trade Theory: Evidence for the Convergence Hypothesis," Open Economies Review, Springer, vol. 14(4), pages 397-418, October.
    8. Resmini, Laura & Siedschlag, Iulia, 2013. "Is foreign direct investment to China crowding out the foreign direct investment to other countries?," China Economic Review, Elsevier, vol. 25(C), pages 1-16.
    9. Debaere & PEter, 2004. "Reversing the Perspective: Multinational Activity from Middle-Income Countries," Econometric Society 2004 North American Summer Meetings 140, Econometric Society.
    10. Markusen, James R. & Venables, Anthony J. & Eby Konan, Denise & Zhang, Kevin H., 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," Working Paper Series 465, Research Institute of Industrial Economics.
    11. Qiu, Larry D. & Tao, Zhigang, 2001. "Export, foreign direct investment, and local content requirement," Journal of Development Economics, Elsevier, vol. 66(1), pages 101-125, October.
    12. Stanley Tweyman, 2022. "Hume on The Epistemological Status of Metaphysical Statements," European Journal of Interdisciplinary Studies Articles, Revistia Research and Publishing, vol. 8, ejis_v8_i.
    13. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
    14. 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..
    15. Irac, D., 2006. "Revisiting the proximity-concentration trade-off: Distance and Horizontal Foreign Direct Investment in OECD countries," Working papers 153, Banque de France.
    16. Bitzenis, Aristidis & Tsitouras, Antonis & Vlachos, Vasileios A., 2009. "Decisive FDI obstacles as an explanatory reason for limited FDI inflows in an EMU member state: The case of Greece," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 691-704, August.
    17. Grazia Ietto-Gillies, 2011. "The Integration and Fragmentation Roles of Transnational Companies," Chapters, in: Miroslav N. Jovanović (ed.), International Handbook on the Economics of Integration, Volume III, chapter 3, Edward Elgar Publishing.
    18. Co, Catherine Y., 2001. "Trade, foreign direct investment and industry performance," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 163-183, January.
    19. Eicher, Theo & Kang, Jong Woo, 2005. "Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals," Journal of Development Economics, Elsevier, vol. 77(1), pages 207-228, June.
    20. JINJI Naoto & ZHANG Xingyuan & HARUNA Shoji, 2011. "Does the Structure of Multinational Enterprises' Activity Affect Technology Spillovers?," Discussion papers 11027, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    multinational enterprise; vertical integration;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hai:wpaper:199601. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Web Technician (email available below). General contact details of provider: https://edirc.repec.org/data/deuhius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.