James R. Markusen

Multinationals, multi-plant economies, and the gains from trade

A general equilibrium model of a multinational enterprise based on economies of multi-plant operation is developed. These economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm. The multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms. Since this technical efficiency may come at the expense of increased market power, the full determinants of home country, host country, and world welfare are considered.

Using the gravity equation to differentiate among alternative theories of trade

Amplifier apparatus for providing output motion correlated to condition change motion or deflection of a condition responsive element. The amplifier in a preferred embodiment is mounted onto the condition responsive element for floating conjoint movement therewith. A remotely connected actuator, extending into the motion path, defines a pivot axis for a hinged gear sector arm of the amplifier. In pivoting about the actuator axis, the sector arm operably drives a rotatable output shaft supporting a pointer or the like.

The Theory of Endowment, Intra-Industry, and Multinational Trade

We consider a trade model combining a 2x2x2 Heckscher-Ohlin structure, monopolistic competition, transport costs, and multinational corporations. We demonstrate how the mix of national and multinational firms that operate in equilibrium depends on technology and on the division of the world endowment between countries. Multinationals are more likely to exist the more similar are countries in both relative and absolute endowments. Where multinationals exist they reduce the volume of trade and raise world welfare (although not necessarily that of both countries). They also reduce the agglomeration forces that arise when international factor mobility is allowed.

Factor movements and commodity trade as complements

Abstract Several models are presented in which factor mobility leads to an increase in the volume of world trade. The models share the common characteristic that the basis for trade is something other than differences in relative factor endowments. These alternative bases for trade include returns to scale, imperfect competition, production and factor taxes, and differences in production technology. Taken together, the models suggest a more general idea: the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models.

Endogenous market structures in international trade (natura facit saltum)

Abstract Almost all of the large literature on international trade with imperfect competition assumes exogenous market structures. The purpose of this paper is to develop a simple model that generates alternative market structures as Nash equilibria for different parameterizations of the basic model. Equilibrium market structure is a function of the underlying technology. Familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases. Small tax-policy changes can produce large welfare effects as the equilibrium market structure shifts, implying discontinuous jumps in prices, quantities, and profits.

Multinational firms, technology diffusion and trade

Empirical evidence indicates a close association between multinational firms and knowledge capital, a public good within the firm. We model a firm which wishes to exploit its knowledge capital abroad, but whose workers learn all the knowledge necessary for production and can defect and produce the good themselves. The home firm must then choose between costly exporting and the possible dissipation of its knowledge capital by producing abroad. The paper examines the choice between exporting, licensing, and acquiring a subsidiary in this environment. We analyze the cost and technology parameters that support the alternative modes of serving the foreign market, and we describe the international equilibrium that jointly determines the pattern of specialization and the market mode.

International externalities and optimal tax structures

Abstract This paper develops a model of two trading countries which are related by a bilateral production externality. Necessary conditions which must characterize an optimal tax structure from the point of view of one country are solved for and interpreted. Second, the model serves as a vehicle to extend the theory of corrective taxation in the case where only one policy instrument is available to deal with several distortions simultaneously. It is pointed out that the ranking of alternate second best tax structures typically depends upon which good is imported and which good is exported.

Competition in regional environmental policies when plant locations are endogenous

Abstract A two-region model is presented in which an imperfectly competitive firm produces a good with increasing returns at the plant level. Production of the good causes local pollution. The firm decides whether to maintain plants in both regions, serve both regions from a single plant or shut down. If the disutility of pollution is high enough, the two regions will compete by increasing their environmental taxes (standards) until the polluting firm is driven from the market. Alternatively, if the disutility from pollution is not as great, the regions will usually compete by undercutting each others pollution tax rates.

Strategic Investments and the Development of Multinationals

A model of multinational behavior is presented in which either the existence or absence of multinationals can be a Nash equilibrium outcome. The key determinant is the relationship between plant scale economies (a force for geographic centralization) and multiplant economies plus transport costs (leading to multinationality). The model predicts that multinational enterprise production arises when firm-specific and transportation costs are large relative to plant scale economies. The latter are both a technological and a strategic variable in the entry decision. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Trade and the gains from trade with imperfect competition

Abstract A simple two-country model is constructed in order to show how imperfect competition can form a basis for trade. Under the assumption of Cournot-Nash behaviour, it is demonstrated that trade will lead to a bilateral welfare improvement when countries are identical in all respects. When countries differ in size, trade will always increase total world real income, but the large country may experience a welfare loss. Increasing returns to scale in the production of the monopolized good complicates the situation further, but it generally remains true that trade increases world real income.