A Quantitative Approach to Multinational Production

The goal of this paper is to quantify the gains from multinational production (MP). I present a multicountry, general equilibrium, Eaton-Kortum type model for MP. Using new data on bilateral revenues and number of foreign affiliates, for OECD and non-OECD countries, I calibrate the model and calculate the gains from MP. Calculations using the calibrated model suggest that among a set of rich countries the real wage losses of closing up to MP would be of around 4%, while for a set of poorer countries these losses would be of around 3%. The gains of moving to frictionless MP would be small, but higher among the group of poorer countries (more than 1%) than among rich countries (around 0.5%)