Optimal Integration Strategies for the Multinational Firm

41 Pages Posted: 23 Dec 2003 Last revised: 11 Aug 2004

See all articles by Gene M. Grossman

Gene M. Grossman

Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Elhanan Helpman

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

Adam Szeidl

Central European University

Multiple version iconThere are 3 versions of this paper

Date Written: December 2003

Abstract

We examine integration strategies of multinational firms that face a rich array of choices of international organization. Each firm in an industry must provide headquarter services from its home country, produce intermediate inputs, and assemble the intermediate goods into final products. Both production of intermediate goods and assembly can be performed at home, in another Northern' country, in the low-wage South,' or in several of these locations. We study the equilibrium choices of firms that differ in productivity (and thus size), focusing on the role of industry characteristics such as the fixed costs of foreign subsidiaries, the cost of transporting intermediate and final goods, and the share of the consumer market that resides in the South in determining optimal integration strategies.

Suggested Citation

Grossman, Gene M. and Helpman, Elhanan and Szeidl, Adam, Optimal Integration Strategies for the Multinational Firm (December 2003). NBER Working Paper No. w10189. Available at SSRN: https://ssrn.com/abstract=482681

Gene M. Grossman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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Elhanan Helpman

Harvard University - Department of Economics ( email )

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Adam Szeidl

Central European University ( email )

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