The Bias of Intrafirm Trade in the Linder Trade Model
Linder's thesis (1961) explaining trade among industrialized partners does not account for trade within the multinational firm. By law, intrafirm trade is counted in aggregate trade statistics used to test Linder's thesis. The volume and geography of that trade introduce a bias into those tests. This article reviews Linder in terms of intrafirm trade, briefly documenting the influence and geography of intrafirm trade. It goes on to demonstrate that intrafirm trade should be treated as an endogenous variable, and tests an amended Linder model of trade. Results from estimations of bilateral flows in four manufacturing sectors strongly support Linder's thesis.