Discriminating Among Alternative Theories of the Multinational Enterprise

14 Pages Posted: 26 Jan 2003

See all articles by James R. Markusen

James R. Markusen

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

Keith E. Maskus

University of Colorado at Boulder - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

Recent theoretical developments have incorporated endogenous multinational firms into the general-equilibrium model of trade. One simple taxonomy separates the theory into "vertical" models, in which firms geographically separate activities by stages of production, and "horizontal" models, in which multiplant firms duplicate roughly the same activities in many countries. The authors nest a horizontal and a vertical model within a hybrid (unrestricted) "knowledge-capital model" and estimate the specifications with data on US foreign direct investment activity. In the nested econometric tests, the data sample cannot distinguish statistically between the unrestricted model and the restricted horizontal model, indicating that the latter captures virtually all of the determinants of FDI. The tests overwhelmingly reject the vertical model.

Suggested Citation

Markusen, James R. and Maskus, Keith E., Discriminating Among Alternative Theories of the Multinational Enterprise. Review of International Economics, Vol. 10, pp. 694-707, 2002. Available at SSRN: https://ssrn.com/abstract=343184

James R. Markusen (Contact Author)

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

Keith E. Maskus

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

Campus Box 256
Boulder, CO 80309
United States
303-492-7588 (Phone)
303-492-8960 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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