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Cost Asymmetry and Taxation - Implications for Multinational Activity

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  • Lynda Porter

    (University College Dublin)

Abstract

This paper presents a novel approach to examining multinationality which features the associated proximity versus concentration trade-off. Borrowing an important tool that is widely used in the strategic trade policy literature, I employ a third country model to examine the effects of a specific policy initiative and a firm-specific advantage on individual firm configuration. The main findings are that taxes hurt the inefficient firm more, causing it to choose the exporting rather than the multinational method of serving markets. Consequently, multinational production is associated with cost-efficiency while the inefficient firm is more likely to be an exporter.

Suggested Citation

  • Lynda Porter, 2003. "Cost Asymmetry and Taxation - Implications for Multinational Activity," Working Papers 200311, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200311
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    File URL: http://www.ucd.ie/economics/research/papers/2003/WP03.11.pdf
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    References listed on IDEAS

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