Multinational Production, Technology Diffusion, and Economic Growth
57 Pages Posted: 13 Dec 2022
Date Written: November 8, 2022
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
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