The Time Pattern of the Internationalization of Production

This paper offers an explanation for the development of international trade, foreign direct investment and the activity of multinational companies in developed countries after the Second World War. A two-country-two-sector-one-factor general equilibrium model is set up and applied in an evolutionary framework. The model features the stylized facts: exports and production abroad increase with falling distance costs, exports increase earlier than production abroad and companies in larger countries internationalize their production earlier than their competitors in smaller countries do. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2001.