Horizontally-integrated MNE and plant heterogeneity

Abstract

In the paper we develop a monopolistically competitive general equilibrium model of horizontally-integrated multinational enterprise (MNE) with heterogeneous plants. We demonstrate that smaller productivity differences between domestic and foreign plants increase the level of multinational activity. We also show that the level of multinational activity is the most intensive between countries of the similar size. Finally, we show that the relative wage increases (decreases) with relative productivity of workers and the degree of product differentiation when the home country is smaller (bigger) compared to the foreign country.

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