New trade theory and multinational corporations

Abstract

After the early models by Lösch, v. Thünen, Christaller et. al. new trade theory may offer new starting-points to model locational mobility in international economics, especially with consideration of multinational firms. The foundations for this possibility were established by choosing monopolistic competition as the main market structure for these models. Thus, economists were able to define the boundaries of individual firms that produce special varieties of a good. Markusen and Venables (1995: 1) also call this strand of theorizing the “industrial organization approach to trade”. Curiously enough, the argument of ownership advantages of firms goes along with the idea that production and cost functions were similar for all firms. Thus, firms are representative agents that are distinguished without being different from each other. One argument to explain the specifity of advantages and factors is that some factors, especially information, are more mobile within the firm than on the market. Thus, firms are explained using mobility as an argument whenever there is intrafirm exchange of goods, services and information. There is an intrafirm exchange of “headquarter services” as a collection of services that are produced at one location and used at several others (marketing, R+D, advertising) (Markusen 1984). Multinational firms are considered as special channels for mobility. It therefore becomes obvious that two different frameworks for mobility in international economic theory are set up: Markets belonging to different countries and the set of spatially dispersed functional units of multinational corporations. Thus, we are able to identify three facets of mobility in these models: