Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963241 | Journal of International Economics | 2007 | 31 Pages |
Abstract
This paper addresses two important issues at the nexus of the literatures on international trade, foreign direct investment (FDI), foreign affiliate sales (FAS), and multinational enterprises (MNEs). First, the introduction of a third internationally-mobile factor (physical capital) to the standard 2Â ÃÂ 2Â ÃÂ 2 “knowledge-capital” model of MNEs with skilled and unskilled labor allows us to resolve fairly readily the puzzle in the modern MNE literature that foreign affiliate sales among two identical economies completely displace their international trade. Intra-industry trade and intra-industry FDI (and FAS) can coexist for national and multinational firms (with identical productivities) in identical countries. Second, the introduction also of a third country to the model suggests a formal N-country theoretical rationale for estimating gravity equations of bilateral FDI flows and FAS, in a manner consistent with estimating gravity equations for bilateral trade flows.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jeffrey H. Bergstrand, Peter Egger,