Managerial control of international firms and patterns of direct investment

Abstract

Formal analyses of international firms have concentrated on advantages from large operations due to, for example, economies of scope. However, the standard framework implicitly assumes the existence of managerial costs for running international operations. The paper develops a model that explicitly incoporates both economies of scope and costs of managerial control of large and international operations. It highlights the potential importance of international firms' organizational structure, suggesting a qualitative difference between situations where international firms have different stages of production located in different countries and situations where firms in addition have the same stage located in different countries.

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