THE RELATIVE EFFICIENCY OF OWNERSHIP STRUCTURES AND INTRA-FIRM TRADE
This article conducts an analysis of the relative efficiency of integrated and non-integrated ownership structures in the presence of trade in intermediate inputs. It is shown that vertical multinationals (integrated ownership) are more efficient when the two vertically related firms are asymmetric in their production costs, R&D, and reservation prices. In the presence of symmetric parametric conditions, non-integration (with inter-firm trade) is more efficient. Empirical analysis of cross-industry variations in the relative importance of intra-firm exports, using data from the Bureau of Economic Analysis for U.S. FDI abroad, confirms the theoretical predictions of the model.
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