2025/08/05 by Sheng Cai, Wei Xiang · 1 voice
Business, Management and Accounting · Economics, Econometrics and Finance · #Economic Growth and Productivity #Global Trade and Competitiveness #Global trade and economics
paper · doi:10.1016/j.jinteco.2025.104137
openalex publication_date 2025/08/05 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23
We develop a tractable growth model to study the dynamic macroeconomic effects of multinational production (MP) across countries. In this framework, MP serves as the channel of international idea diffusion: when firms operate in a foreign country, they contribute to the local stock of knowledge. By embedding this mechanism into a quantitative model of trade and MP, we characterize the evolution of bilateral MP flows, trade flows, and technology dynamics across 54 economies. Counterfactual analysis reveals that reduction in MP costs boosted economic growth, especially in developing economies. We show that a 10-year MP sanction on Russia would reduce the welfare by 9.11%, although the immediate effect is small. We find that increasing outward MP costs for U.S. firms has immediate positive wage effects but negative growth implications. Additionally, a 10% increase in U.S. inward trade costs results in a 0.2% decline in the country’s present value of welfare.