Multinational Entry And Exit, Technology Transfer, And International Business Cycles
Author(s) Gautham Udupa


I develop a general equilibrium model of trade and horizontal multinational production (MP) with firm heterogeneity, market access frictions including export and MP sunk costs, multinational parent-to-affiliate technology transfer, and capital. I find that pro-cyclical MP exit (i.e., MP extensive margin) plays an important role in increasing macroeconomic volatility and reducing international correlations. When calibrated to match US data, I approximate that at least 15% of the change between a no-MP model and the MP model can be attributed to MP extensive margin. Overall, the paper highlights the importance of firm extensive margin, in particular that of MP, in aggregate business cycle dynamics.

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