Asymmetric effects of trade and FDI : South America versus Europe
Title: Asymmetric effects of trade and FDI : South America versus Europe
Author: ALLUB, Lian
Series/Number: EUI MWP; 2015/16
The gains from openness to trade and multinational production (MP) depend largely on country size. A large country may attract more foreign firms by closing itself to trade, while a small country may attract a larger amount of MP if trade costs with its neighbors are low because it can be used as an export platform. I develop a model to study these effects, where firms face non-convex decisions of whether to serve a foreign country by exporting from the home country, exporting from a third country, or producing in the foreign country. I calibrate the model separately for South America and Europe. I find that the gains from openness in Europe are double those in South America, and that the distribution of these gains varies less with size in South America. I also find that MP is more important in explaining the gains from openness in large countries, but the export platform mechanism is more important in small countries. Finally, I find that trade and MP have important implications for the size distribution of firms.
Subject: Trade; Multinational production; Bridge multinational production; South America; Europe; F12; F15; F23
Type of Access: openAccess