DP16579 Dynamics of Large Multinationals

Author(s): Elhanan Helpman, Benjamin Niswonger
Publication Date: September 2021
Keyword(s): Firm Dynamics, foreign affiliate, Foreign direct investment, Innovation, Multinational Enterprise, product span
JEL(s): D43, F12, F23, L11, L13, L25
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16579

We develop a model of large multinational enterprises, each one producing a continuum of products. These outsized firms compete as oligopolists in a domestic and foreign market, facing competitive pressure from single-product firms that engage in monopolistic competition. The multinational enterprises invest in R&D in order to expand the span of their products and in foreign direct investment (FDI) in order to expand the range of products manufactured by their foreign affiliates. We study the dynamic evolution of these markets and characterize transition dynamics and steady states. In addition to the evolution of product spans, we characterize the evolution of prices, markups, market shares, and exports relative to subsidiary sales. Furthermore, we study comparative dynamics that result from changes in trade costs, R&D costs, the cost of FDI and productivity changes of the multinational firms.