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Combinatorial Discrete Choice: A Quantitative Model of Multinational Location Decisions

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  • Costas Arkolakis
  • Fabian Eckert
  • Rowan Shi

Abstract

We introduce a general quantifiable framework to study the location decisions of multinational firms. In the model, firms choose in which locations to pay the fixed costs of setting up production, taking into account potential complementarities among production locations. The firm’s location choice problem is combinatorial because the marginal value of an individual production location depends on its complete set of production sites. We develop a computational method to solve such problems and aggregate optimal decisions across heterogeneous firms. We use our calibrated model to study Brexit and the recent sanctions war with Russia. In both counterfactuals, changes in the location decisions of multinationals are driving real wage responses.

Suggested Citation

  • Costas Arkolakis & Fabian Eckert & Rowan Shi, 2023. "Combinatorial Discrete Choice: A Quantitative Model of Multinational Location Decisions," NBER Working Papers 31877, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31877
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    Cited by:

    1. Huang, Hanwei & Manova, Kalina & Perelló, Oscar & Pisch, Frank, 2024. "Firm Heterogeneity and Imperfect Competition in Global Production Networks," CEPR Discussion Papers 19408, C.E.P.R. Discussion Papers.
    2. Xavier Giroud & Simone Lenzu & Quinn Maingi & Holger Mueller, 2024. "Propagation and Amplification of Local Productivity Spillovers," Econometrica, Econometric Society, vol. 92(5), pages 1589-1619, September.
    3. Bao, Alex & Bontems, Philippe & Cardebat, Jean-Marie & Chiappini, Raphael, 2024. "Exporters’ behaviour in the face of climate volatility," TSE Working Papers 24-1552, Toulouse School of Economics (TSE).
    4. Bartelme, Dominick & Ziv, Oren, 2024. "The internal geography of firms," Journal of International Economics, Elsevier, vol. 148(C).

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F6 - International Economics - - Economic Impacts of Globalization

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