Essays on International Trade and Multinational Firms
Open Access
- Author:
- Tintelnot, Felix
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- March 11, 2013
- Committee Members:
- Jonathan W Eaton, Dissertation Advisor/Co-Advisor
Stephen Ross Yeaple, Dissertation Advisor/Co-Advisor
James R. Tybout, Committee Member
Martin Bojowald, Committee Member - Keywords:
- International Trade
Multinational Firms - Abstract:
- Most international commerce is carried out by multinational firms, which use their foreign affiliates for the majority of their foreign sales. In Chapter 1, I examine the determinants of multinational firms' location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms -- i.e. they do not allow foreign affiliates of multinationals to export -- or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multi-country general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that fixed costs of foreign investment are large. Second, I calibrate the model to data on trade and multinational production for twelve European and North American countries. Counterfactual results reveal that multinationals play an important role in transmitting technological improvements to foreign countries as they can jump the barriers to international trade; I find that a twenty percent increase in the productivity of US firms leads to welfare gains in foreign countries an order of magnitude larger than in a world in which multinational production is disallowed. I demonstrate the usefulness of the model for current policy analysis by studying the pending Canada-EU trade and investment agreement; I find that a twenty percent drop in the barriers to foreign production between the signatories would divert about seven percent of the production of EU multinationals from the US to Canada. Chapter 2, which is joint work with Kerem Cosar and Paul Grieco, studies the implications of national borders on economic activity. Using a micro-level dataset of wind turbine installations in Denmark and Germany, we estimate a structural oligopoly model with cross-border trade and heterogeneous firms. Our approach separately identifies border-related from distance-related variable costs and bounds the fixed cost of exporting for each firm. Variable border costs are large: equivalent to roughly 400 kilometers (250 miles) in distance costs, which represents 40 to 50 percent of the average exporter's total delivery costs. Fixed costs are also important; removing them would increase German firms' market share in Denmark by 10 percentage points. Counterfactual analysis indicates that completely eliminating border frictions would increase total welfare in the wind turbine industry by 5 percent in Denmark and 10 percent in Germany. Finally, an experiment using our structural model shows that commonly used price difference regressions produce misleadingly high estimates of the impact of national boundaries.