SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

Abstract: 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.

Keywords: Trade Costs; Country Size; Factor Endowments; Horizontal & Vertical Multinationals

JEL-codes: F12; F21; F23

19 pages, First version: November 15, 2000. Revised: December 8, 2000.

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