Abstract
A substantial amount of evidence has emerged indicating that a majority of the world's largest multinational enterprises concentrate activities in their home region. However, there are relatively few studies which test whether such concentrations are consistent with economic theory. This paper works to fill the void. It tests whether regional concentrations of OECD exports and outward FDI are consistent with predictions of a gravity model. The empirical evidence provided here indicates that exports are far more regional than the model predicts. As for FDI, the empirical evidence shows that intra-regional FDI in Europe is larger than the model predicts, whereas intra-regional FDI patterns within North America are consistent with gravity. Overall, this paper provides further support for Rugman's thesis that MNEs are best described as regional as opposed to global actors.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Anderson, James E. “A theoretical foundation for the gravity equation,” American Economic Review, 69, 1979, pp. 106–16.
Bergstrand, Jeffrey H. “The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence,” Review of Economics and Statistics, 67, 1985, pp. 474–481.
—. “The Generalized Gravity Equation, Monopolistic Competition, and the factor proportions theory of international trade,” Review of Economics and Statistics, 71, 1989, pp. 143–53.
—. “The Heckscher–Ohlin–Samuelson model, the Linder Hypothesis and the Determinants of Bilateral Intraindustry Trade,” Economic Journal, 100, 403, 1990, pp. 1216–29.
Brainard, S. Lael. “An Empirical Assessment of the Proximity-Concentration Trade-Off Between Multinational Sales and Trade,” American Economic Review, 87, 4, 1997, pp. 520–44.
Deardorff, Alan V. “Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World”, in: Jeffrey A. Frankel (ed.), The Regionalization of the World Economy, Chicago: University of Chicago Press, 1998.
Ethier, W. “National and International Returns to Scale in the Modern Theory of International Trade,” American Economic Review 72, 1982, pp. 389–405.
Feenstra, Robert C.; Markusen, James R.; Rose, Andrew K. “Using the Gravity Equation to Differentiate Among Alternative Theories of Trade,” Canadian Journal of Economics, 34, 2, 2001, pp. 430–47.
Frankel, J. A.; Stein, Ernesto; Wei, Shang-Jin. “APEC and Regional Trading Arrangements in the Pacific,” in: Dobson, Wendy; Flatters, Frank (eds.), Pacific Trade and Investment: Options for the 1990s Kingston, Ontario: John Deutsch Institute, 1995.
Grosse, Robert; Trevino, Len. “Foreign Direct Investment in the United States: An Analysis by Country of Origin,” Journal of International Business Studies, First Quarter, 1996, pp. 139–55.
Grubert, Harry; Mutti, John. “Taxes, Tariffs, and Transfer Pricing in Multinational Corporate Decision-Making,” Review of Economics and Statistics, 73, 2, May 1991, pp. 285–293.
Head, Keith; Ries, John. “Judging Japan's FDI: The Verdict from a Gartboard Model,” Journal of the Japanese and International Economies, 19, 2005, pp. 215–32.
Hejazi, Walid. “Reconsidering the Concentration of US MNE Activity: Is it Regional or National?” University of Toronto Working Paper, 2005.
Hejazi, Walid; Safarian, A. E. “NAFTA Effects and the Level of Development,” forthcoming in Journal of Business Research, 2005.
Hejazi, Walid; Trefler, Daniel. “Explaining Canada's Trade with the Asia-Pacific,” in The Asia Pacific Region and the Global Economy: A Canadian Perspective, Harris, Richard (ed.), , University of Calgary Press, The Industry Canada Research Series, 1996.
Helpman, Elhanan. “Imperfect Competition and International Trade: Evidence from Fourteen Industrial Countries,” Journal of the Japanese and International Economies, 1, 1987, pp. 62–81.
Leamer, Edward E. “The Commodity Composition of International Trade in Manufactures: An Empirical Analysis,” Oxford Economic Papers, 26, 1974, pp. 350–74.
Lipsey, Robert E.; Weiss, Merle Yahr. “Foreign Production and Exports in Manufacturing Industries,” The Review of Economic Statistics, November, 1981, pp. 488–94.
—. “Foreign Production and Exports of Individual Firms,” The Review of Economics and Statistics, 1984, pp. 304–8.
Markusen, James R. Multinational Firms and the Theory of International Trade. MIT, 2002.
McCallum, John. “National Borders Matter: Canada–US Regional Trade Patterns,” American Economic Review, 95, June 1995, pp. 615–23.
Rugman, Alan M.; The End of Globalization. Random House, London, 2000.
Rugman, Alan M.; Brain, Cecilia. “Multinational Enterprises are Regional, Not Global,” The Multinational Business Review, 11, 1, Spring 2003, pp. 3–12.
Rugman, Alan; Girod, Stephane. “Retail Multinationals and Globalization: The Evidence is Regional”, European Management Journal, 21, 1, 2003, pp. 24–37.
Rugman, Alan; Moore, Karl. “Canadian Multinationals are Regional, Not Global,” Policy Options, August 2003, pp. 44–6.
Rugman, Alan; Verbeke, Alain. “A Perspective on Regional and Global Strategies of Multinational Enterprises, ” Journal of International Business Studies, 35, 1, 2004, pp. 3–18.
Stein, Ernesto, Duade, Christain. “Institutions, Integration and the Location of Foreign Direct Investment”, New Horizons for Foreign Direct Investment, OECD Global Forum on International Investment, Paris: OECD, 2001, pp.101–28.