Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 201: The International Firm: A Vehicle for Overcoming Barriers to Trade and a Global Intelligence Organization Diffusing the Notion of a Nation

Gunnar Eliasson
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Gunnar Eliasson: Research Institute of Industrial Economics (IFN)

Abstract: The multinational firm (MNF) is introduced as the intersection between trade theory and the theory of the firm. I show that economies of scale associated with various knowledge inputs have made it possible for firms to grow large through internationalization and, once large, staying competitive and large. Internationalization is a technique of both overcoming barriers to trade, and of efficient learning to stay competitive. International firms are increasingly becoming large and highly mobile carriers of industrial knowledge embodied in teams of humans. With barriers to trade and factor movements further reduced in Europe the first reason for globalization will decrease for firms located inside the internal market, but intensified technological competition will make the second factor increasingly important, constantly shifting the intelligence locus of the business organization to the markets where the most advanced industrial knowledge is being exhibited in competition. Europe will become such a locus of competition and competence allocation to the extent "it" lives up to its ambition to deregulate markets, and especially the markets for ownership and control. In general global markets are seen as a vast source of business opportunities and the firm as a local source of competence to exploit the opportunities.

Keywords: Multinational firms; trade barriers; international trade; economies of scale

JEL-codes: F15; F23; L22; L23

40 pages, December 1988

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