SSE/EFI Working Paper Series in Economics and Finance 416
Both proximity-concentration trade-off and factor proportions explanations have been forwarded to explain the existence of multinational enterprises. This paper analyses to what extent these different explanations are supported empirically, in making a first attempt to distinguish explicitly between horizontally and vertically integrated multinationals. The affiliate production share of horizontally integrated multinationals is mainly explained by low plant-level economies of scale, large host country size and similarities in relative factor endowments. Differences for vertical multinationals appear with regard to firm- and plant-level economies of scale, country size, trade costs and relative factor endowments at the national and sectoral level.
Trade Costs Country Size Factor Endowments Horizontal & Vertical Multinationals