Maria C. Latorre, Ph.D., Departamento de Economía Aplicada II, Universidad Complutense de Madrid, Facultad de CC. Económicas y Empresariales, Campus de Somosaguas, Madrid, 28223, Spain and Antonio G. Gómez-Plana, Ph.D., Departamento de Economía, Universidad Pública de Navarra, Facultad de CC. Económicas y Empresariales, Campus de Arrosadia, Pamplona, 31071, Spain.
An important part of world trade flows is related to the activities of Multinational Enterprises (MNEs). During decades, however, applied trade models have not included MNEs’ behaviour. This is often due to lack of data on MNEs’ weight in the economies, particularly, if one is to use a general equilibrium approach. This paper aims at offering a response to this situation. In order to do so we extend a model based on the GTAP database to include MNEs in such a manner that can be complemented with data for this type of firms supplied by the OECD. This makes it possible to consider MNEs’ presence for an important range of OECD countries in a general equilibrium framework.
The current version is a 2-region, 2-factor, 20-sector model. We simulate the differential impact of MNEs and foreign direct investment (FDI) on host, or receiving, economies, according to the sector in which they act and to which FDI flows accrue. The inclusion of both a macro and microeconomic perspective leads to a better understanding of the main outcomes obtained. Having both sides enables the policy maker to better analyse which sectors are the most important to achieve an increase in GDP and welfare. And what the costs are for the rest of sectors involved in the process.
We have paid a special attention to a mostly neglected aspect of the impact of MNEs, namely, profit repatriation. The empirical analysis is applied to the case of the Czech Republic, a country that has received substantial inflows of foreign direct investment in the last few years.