Title

Optimal Integration Strategies for the Multinational Firm

Author(s)

Gene M. Grossman Gene Grossman (Princeton University)

Elhanan Helpman Elhanan Helpman (Harvard University, Tel Aviv University, and CIAR)

Adam Szeidl Adam Szeidl (Harvard University)

Abstract

We examine integration strategies of multinational firms that face a rich array of choices of international organization. Each firm in an industry must provide headquarter services from its home country, produce intermediate inputs, and assemble the intermediate goods into final products. Both production of intermediate goods and assembly can be performed at home, in another Northern country, in the low-wage South, or in several of these locations. We study the equilibrium choices of firms that differ in productivity (and thus size), focusing on the role of industry characteristics such as the fixed costs of foreign subsidiaries, the cost of transporting intermediate and final goods, and the share of the consumer market that resides in the South in determining optimal integration strategies.

Creation Date

2003-11

Section URL ID

WWSEcon

Paper Number

dp225.pdf

URL

http://www.personal.ceu.hu/staff/Adam_Szeidl/papers/integration.pdf

File Function

Jel

F23, F12, L22

Keyword(s)

direct foreign investment, multinational corporations, intra-firm trade, vertical integration

Suppress

false

Series

4