Working Paper Series
Multinationals without Advantages
Abstract: We propose a simple model to analyze the widespread idea
that a necessary condition for firms to make foreign direct investments is
that they have firm-specific advantages with respect to host country firms.
We show that no such advantages are necessary to become multinationals.
Further, firms might be induced to invest abroad to acquire new advantages,
rather than exploiting existing ones. For this reason, foreign direct
investment might occur even in the absence of exporting costs and lower
production costs in the host country. Firms endowed with lower quality
might make direct investments to benefit from technological spillovers
which arise when manufacturing subsidiaries are close, whereas high quality
firms might prefer not to invest abroad to avoid dissipation of their
Keywords: TRANSNATIONAL CORPORATIONS; INVESTMENTS; (follow links to similar papers)
JEL-Codes: F21; F23; (follow links to similar papers)
21 pages, August 1996
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