Vertical Multinationals and Host-Country Characteristics

32 Pages Posted: 11 Jun 2000 Last revised: 30 Jul 2008

See all articles by Kevin H. Zhang

Kevin H. Zhang

Illinois State University - Department of Economics; University of Colorado

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: September 1997

Abstract

The literature on multinationals and developing countries has examined the causality" running from direct investment to changes in country characteristics (wages skills, etc.) and also the opposite direction of causality, from existing country characteristics to" inward direct investment. This paper contributes to the second line of research the question of what country characteristics, particularly market size and labor-force" composition, attract inward investment. This approach is motivated by the empirical" observation that the poorest countries attract a far smaller share of world direct investment than" their share of income. Small markets receive less investment per capita than larger ones. We" develop a model that generates both stylized facts in equilibrium, suggesting the existence of a" development trap for small, skilled-labor-scarce countries.

Suggested Citation

Zhang, Kevin H. and Markusen, James R., Vertical Multinationals and Host-Country Characteristics (September 1997). NBER Working Paper No. w6203. Available at SSRN: https://ssrn.com/abstract=225961

Kevin H. Zhang (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States
309-438-8928 (Phone)
309-438-5228 (Fax)

University of Colorado

1070 Edinboro Drive
Boulder, CO 80309
United States

James R. Markusen

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-0748 (Phone)
303-492-8960 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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