The Multinational Firm

Stephen Ross Yeaple
Penn State University and NBER
December 19, 2012

Abstract: This paper documents the recent advances in the international trade literature toward understanding the role of multinational firms in the conduct of international commerce. Over thelast ten years, we have developed a better understanding of the incentives firms face in wherethey locate production, and we know more about the incentives that induce firms to verticallyintegrate. Further, the theory literature has progressed from two country models that cannotcapture the richness of multinational firms’ activities to multi-country models that do. Theempirics have advanced as well but at a slower pace. Progress has been slowed by the lack ofcomprehensive data and the difficulties of distinguishing between the various mechanismsproposed by theory.

JEL Codes: F23, F12, L22, L24, L25

Key words: foreign direct investment, horizontal integration, vertical integration, internalization,offshoring.