Exploring Determinants of the Firm Boundary for Swedish Multinational Firms

This paper empirically examines the foreign production of Swedish multinationals with reference to recently developed general-equilibrium trade theories based on the organisation of the firm. Specifically, we investigate the impact of factors that may affect a firm’s choice between foreign direct investment in a host country and the offshoring of production to that particular location. We examine detailed firm level data, using a fixed effects estimation method, to identify whether factors stemming from our theoretical base affect the foreign production shares of Swedish multinational firms. These factors include firm-specific effects related to the firm’s production technology and host-country specific effects related to the functioning of markets, the rule of law and other institutional factors. A main contribution of the study is to clarify the role played by theoretically founded determinants on the basis of an empirical investigation. Especially, we expect our evidence to give a clear indication of how to discriminate between theories that provide contradictory hypotheses.