Trade, FDI, and the Organization of Firms
Helpman, Elhanan. 2006. "Trade, FDI, and the Organization of Firms."
Journal of Economic Literature,
New developments in the world economy have triggered research designed to better
understand the changes in trade and investment patterns, and the reorganization of
production across national borders. Although traditional trade theory has much to
offer in explaining parts of this puzzle, other parts required new approaches.
Particularly acute has been the need to model alternative forms of involvement of
business firms in foreign activities because organizational change has been central in
the transformation of the world economy. This paper reviews the literature that has
emerged from these efforts. The theoretical refinements have focused on the individual
firm, studying its choices in response to its own characteristics, the nature of the
industry in which it operates, and the opportunities afforded by foreign trade and
investment. Important among these choices are organizational features, such as
sourcing strategies. But the theory has gone beyond the individual firm, studying the
implications of firm behavior for the structure of industries. It provides new explanations
for trade structure and patterns of foreign direct investment, both within and
across industries, and has identified new sources of comparative advantage.
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