Trade, FDI and the Organization of Firms

54 Pages Posted: 28 Jun 2006

See all articles by Elhanan Helpman

Elhanan Helpman

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

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Date Written: March 2006

Abstract

New developments in the world economy have triggered research designed to better understand the changes in trade and investment patterns, and the reorganization of production across national borders. Although traditional trade theory has much to offer in explaining parts of this puzzle, other parts required new approaches. Particularly acute has been the need to model alternative forms of involvement of business firms in foreign activities, because organizational change has been central in the transformation of the world economy. This paper reviews the literature that has emerged from these efforts. The theoretical refinements have focused on the individual firm, studying its choices in response to its own characteristics, the nature of the industry in which it operates, and the opportunities afforded by foreign trade and investment. Important among these choices are organizational features, such as sourcing strategies. But the theory has gone beyond the individual firm, studying the implications of firm behavior for the structure of industries. It provides new explanations for trade structure and patterns of FDI, both within and across industries, and has identified new sources of comparative advantage.

Keywords: International trade, foreign direct investment, comparative advantage, heterogeneity, incomplete contracts, organization of production

JEL Classification: D23, F1, F2

Suggested Citation

Helpman, Elhanan, Trade, FDI and the Organization of Firms (March 2006). CEPR Discussion Paper No. 5589. Available at SSRN: https://ssrn.com/abstract=912727

Elhanan Helpman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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