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 CHAPTER 15; MULTINATIONALS International Trade & the World Economy; Charl
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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 - PowerPoint PPT Presentation
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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
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
Foreign direct investment International Trade & the World Economy; Charles van Marrewijk
a. GDP, trade and FDI (1970 = 100)
0
100
200
300
400
500
600
1970 1975 1980 1985 1990 1995
FDI
GDP
Trade
Foreign direct investment International Trade & the World Economy; Charles van Marrewijk
a. FDI inflows (billions of $)
0
100
200
300
WesternEurope
Central andEasternEurope
Africa NorthAmerica
LatinAmericaand the
Caribbean
J apan Asian NIC's Other Asia
87-92 av.
1993
1994
1995
1996
1997
1998
Foreign direct investment International Trade & the World Economy; Charles van Marrewijk
b. FDI outflows (billion of $)
0
100
200
300
400
WesternEurope
Central andEasternEurope
Africa NorthAmerica
LatinAmericaand the
Caribbean
J apan Asian NIC's Other Asia
87-92 av.
1993
1994
1995
1996
1997
1998
Foreign direct investment International Trade & the World Economy; Charles van Marrewijk
c. Net FDI flows (billion of $)
-200
-100
0
100
WesternEurope
Central andEasternEurope
Africa NorthAmerica
LatinAmericaand the
Caribbean
J apan Asian NIC's Other Asia
87-92 av.
1993
1994
1995
1996
1997
1998
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
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
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.
Explaining multinationals International Trade & the World Economy; Charles van Marrewijk
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
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
Multinationals in general equilibrium International Trade & the World Economy; Charles van Marrewijk
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.
mB; multinational firm, headquarters in BoliviaMC in A = cwA
MC in B = cwB
Multinationals in general equilibrium International Trade & the World Economy; Charles van Marrewijk
mA; multinational firm, headquarters in AustriaMC in A = cwA
MC in B = cwB
nB; national firm, headquarters in BoliviaMC in A = (c+t)wA
MC in B = cwB
nA; national firm, headquarters in AustriaMC in A = cwA
MC in B = (c+t)wB
Headquarters in Austria
Firm level fixed costs FwA
Plant level fixed costs GwA
Plant level fixed costs GwB
Multi-plant production?
+
yesno
Headquarter locationHeadquarters
in Bolivia
Firm level fixed costs FwB
Plant level fixed costs GwB
Plant level fixed costs GwA
Multi-plant production?
+
yesno
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
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
Characterization of equilibrium International Trade & the World Economy; Charles van Marrewijk
labor
capi
tal
OA
OB
Austria largeBolivia small
Austria smallBolivia large
Austria capital abundantBolivia labor abundant
Austria labor abundantBolivia capital abundant
C
Characterization of equilibrium International Trade & the World Economy; Charles van Marrewijk
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
Case study: hard disk drives International Trade & the World Economy; Charles van Marrewijk
Substrate
Media
Motors
Head-StackAssembly
Head-GimbalAssembly
HeadFabrication
Semiconductors PCB Stuffing and OtherElectronics Assembly
Head-DiskAssembly
FinalAssembly
Testing
ComponentFabricationActivities
Subassembly Activities FinalAssemblyActivities
Case study: hard disk drives International Trade & the World Economy; Charles van Marrewijk
Table 15.3 Hard Disk Drives; indicators of nationality of production*
Measure# US Japan S.E. Asia Other Asia Europe Other
Nationality of firm 88.4 9.4 0 2.2 0 0
Final assembly 4.6 15.5 64.2 5.7 10.0 0
Employment 19.3 8.3 44.0 17.1 4.7 6.5
Wages paid 39.5 29.7 12.9 3.3 8.5 6.1
*Source: Gourevitch et al. (2000), Table 2 (data for 1995). All numbers as percentage of world total.# Nationality of firm (% of unit output); location of final assembly; employment in value chain; and wagespaid in value chain, respectively.
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
CHAPTER 15; MULTINATIONALSInternational Trade & the World Economy; Charles van Marrewijk
Conclusions International Trade & the World Economy; Charles van Marrewijk
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)