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Introduction The size and structure of multinationals Foreign direct investment

International Trade & the World Economy;  Charles van Marrewijk. CHAPTER 15; MULTINATIONALS. Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium

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Introduction The size and structure of multinationals Foreign direct investment

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  1. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  2. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  3. International Trade & the World Economy;  Charles van Marrewijk Introduction Joseph Schumpeter (1883 - 1950)

  4. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  5. International Trade & the World Economy;  Charles van Marrewijk The size and structure of multinationals

  6. International Trade & the World Economy;  Charles van Marrewijk The size and structure of multinationals

  7. International Trade & the World Economy;  Charles van Marrewijk The size and structure of multinationals

  8. International Trade & the World Economy;  Charles van Marrewijk The size and structure of multinationals

  9. International Trade & the World Economy;  Charles van Marrewijk The size and structure of multinationals

  10. International Trade & the World Economy;  Charles van Marrewijk The size and structure of multinationals

  11. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  12. International Trade & the World Economy;  Charles van Marrewijk Foreign direct investment

  13. International Trade & the World Economy;  Charles van Marrewijk Foreign direct investment

  14. International Trade & the World Economy;  Charles van Marrewijk Foreign direct investment

  15. International Trade & the World Economy;  Charles van Marrewijk Foreign direct investment

  16. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  17. International Trade & the World Economy;  Charles van Marrewijk Explaining multinationals • Dunning’s OLI framework: • Ownership advantages • Location advantages • Internalization advantages • Empirical characteristics of multinationals: • high ratios of R&D relative to sales • employ large numbers of scientific, technical, and other 'white collar' workers as a percentage of their work force • high value of 'intangible' assets • associated with new and/or technically complex products • negatively associated with plant-level scale economies • associated with product-differentiation variables (e.g. advertising/sales) • A minimum or 'threshold' level of firm size seems to be important • Multinationals tend to be older, more established firms.

  18. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  19. International Trade & the World Economy;  Charles van Marrewijk Multinationals in general equilibrium • Markusen-Venables model • Perfect competition and CRS for food sector. • Imperfect competition and IRS for manufacturing sector • Production of manufactures characterized by • c - the (constant) marginal production costs in terms of labor • t - the amount of labor needed to transport one unit of manufactures from Austria to Bolivia, or vice versa. • F - the firm level fixed costs in terms of labor. • G - the plant level fixed costs in terms of labor.

  20. International Trade & the World Economy;  Charles van Marrewijk Headquarters in Austria Firm level fixed costs FwA + Plant level fixed costs GwA Multi-plant production? yes no Plant level fixed costs GwB Multinationals in general equilibrium Headquarter location Headquarters in Bolivia Firm level fixed costs FwB + Plant level fixed costs GwB Multi-plant production? yes Plant level fixed costs GwA no nA; national firm, headquarters in Austria MC in A = cwA MC in B = (c+t)wB mA; multinational firm, headquarters in Austria MC in A = cwA MC in B = cwB mB; multinational firm, headquarters in Bolivia MC in A = cwA MC in B = cwB nB; national firm, headquarters in Bolivia MC in A = (c+t)wA MC in B = cwB

  21. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  22. International Trade & the World Economy;  Charles van Marrewijk Characterization of equilibrium

  23. International Trade & the World Economy;  Charles van Marrewijk Characterization of equilibrium

  24. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  25. International Trade & the World Economy;  Charles van Marrewijk Case study: hard disk drives

  26. International Trade & the World Economy;  Charles van Marrewijk Case study: hard disk drives

  27. International Trade & the World Economy;  Charles van Marrewijk CHAPTER 15; MULTINATIONALS Introduction The size and structure of multinationals Foreign direct investment Explaining multinationals Multinationals in general equilibrium Characterization of equilibrium Case study: hard disk drives Conclusions

  28. International Trade & the World Economy;  Charles van Marrewijk Conclusions • Multinationals are becoming increasingly important (w.r.t. production, investment, and trade) • Most multinationals in OECD countries • Most FDI horizontal acquisitions between OECD countries • Explaining multinationals • Descriptive OLI framework • Modern general equilibrium framework • Modern framework determines market structure endogenously; results confirm reasonably well with stylized facts (multinationals dominate if countries are more similar; national firms dominate if countries differ in size or relative endowment)

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