The Role of Multinational Production in a Risky Environment

Ramondo, Natalia; Rappoport, Veronica

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The Role of Multinational Production in a Risky Environment

Journal of International Economics, Vol. 81, No. 2, 2010

41 Pages Posted: 3 Dec 2009 Last revised: 7 Jul 2010

See all articles by Natalia Ramondo

Natalia Ramondo

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Veronica Rappoport

London School of Economics & Political Science (LSE)

There are 2 versions of this paper

Date Written: December 1, 2009

Abstract

This paper explores the aggregate consequences of Foreign Direct Investment (FDI) on the opportunities for risk diversification available to consumers. The crucial difference between FDI and other international financial flows is that the former involves technology flows across countries. We present a model where embedded productivity can be transferred costly across countries through the activity of multinational firms. We find that risk patterns affect multinationals' location decisions and, in turn, these decisions change the scope for international risk diversification even in a world with complete financial markets.

Keywords: Foreign Direct Investment, multinational firms, international risk sharing

JEL Classification: F41, F23

Suggested Citation: Suggested Citation

Ramondo, Natalia and Rappoport, Veronica, The Role of Multinational Production in a Risky Environment (December 1, 2009). Journal of International Economics, Vol. 81, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=1517368