Multinational Production, Technology Diffusion, and Economic Growth

57 Pages Posted: 13 Dec 2022

See all articles by Sheng Cai

Sheng Cai

City University of Hong Kong

Wei Xiang

Yale University

Date Written: November 8, 2022

Abstract

We develop a tractable growth model to study the dynamic macroeconomic effects of multinational production (MP) across countries. In this model, MP is the vehicle of international idea diffusion: when firms produce in a foreign country, they contribute to the local stock of knowledge. We incorporate idea diffusion into a quantitative framework of trade and MP. The model yields tractable expressions for bilateral MP flows, trade flows, and the dynamics of technology that we use in our calibration across a set of 54 economies. Counterfactual analysis reveals that a reduction in MP costs boosts economic growth, especially in developing economies. We also find that reshoring policies have positive short-run effects but negative welfare implications in the long run.

Keywords: Multinational Production, Technology Diffusion, Economic Growth

JEL Classification: F11, F23, F43, O11, O41

Suggested Citation

Cai, Sheng and Xiang, Wei, Multinational Production, Technology Diffusion, and Economic Growth (November 8, 2022). Available at SSRN: https://ssrn.com/abstract=4284058 or http://dx.doi.org/10.2139/ssrn.4284058

Sheng Cai (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Wei Xiang

Yale University ( email )

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