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Journal of Economic Perspectives: Vol. 9 No. 2 (Spring 1995)

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The Boundaries of Multinational Enterprises and the Theory of International Trade

Article Citation

Markusen, James R. 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade." Journal of Economic Perspectives, 9(2): 169-189.

DOI: 10.1257/jep.9.2.169

Abstract

This paper begins with a review of empirical evidence on multinational firms. Conceptual underpinnings of a theory are developed, relying in particular on the notion of knowledge capital as a mobile, joint input into geographically separated production facilities. This idea is embedded in a simple two-country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence. The final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm, rather than through arm's-length markets.

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Authors

Markusen, James R. (U CO and NBER)

JEL Classifications

F23: Multinational Firms; International Business
F10: Trade: General

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