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Intra-firm and arm's length trade: how distance matters?

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  • Pamela Bombarda

    (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique)

Abstract

Multinational and exporting firms play a key role in trade patterns. To highlight the importance of intra-firm trade in share of world trade, this paper develops a model of trade and intra-firm trade with heterogeneous firms. In this set up, trade costs apply to both exports and multinational production because both involve transportation. However, the magnitude will differ. The introduction of intra-firm trade generates a complementarity between FDI and Exports. Using data for 1999-2004, we test the gravity equations delivered by the model. Quantitatively, we find that exports within the boundaries of the firms are less sensitive to geographical barriers than arm's length trade.

Suggested Citation

  • Pamela Bombarda, 2011. "Intra-firm and arm's length trade: how distance matters?," Working Papers hal-00877199, HAL.
    • Handle: RePEc:hal:wpaper:hal-00877199
    Note: View the original document on HAL open archive server: https://hal.science/hal-00877199
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    References listed on IDEAS

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    Cited by:

    1. Arne J. Nagengast & Robert Stehrer, 2016. "The Great Collapse in Value Added Trade," Review of International Economics, Wiley Blackwell, vol. 24(2), pages 392-421, May.

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