International Business Cycles- The Role Of Technology And Resource Transfers Within Multinationals
Author(s) Gautham Udupa, Research Director, CAFRAL


Recent empirical research has identified mechanisms through which multinational firms affect international business cycle comovement. To quantify these mechanisms, I develop a general equilibrium model of trade and multinational production (MP) with firm hetero-geneity, market access frictions, and physical capital. Because firms own physical capital, their entry and exit into MP generates transfer of this productive resource across countries. I focus on the interaction of this novel channel with the within-firm technology transfer channel and quantify its implications for international output comovement. Re-source transfer channel worsens comovement as multinationals move capital towards the high growth country, but technology transfer augments comovement. When calibrated to the United States, output comovement is highest in the full model, followed by a no trade model, and least in an MP model with only the resource transfer channel. Of the increase in comovement between no-trade and full model, 30% is due to MP entry and exit.

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