It is widely held that multinational enterprises arise as a consequence of the existence of knowledge-based, firm-specific assets such as superior technology or management know-how. These assets are much like public goods within the firm in that they can be costlessly supplied to additional plants, thus leading to the efficiency of multiplant production. Foreign direct investment then consists of supplying the services of the assets to foreign operations and repatriated earnings are payments for these services. These notions are formalized in a simple model of the multinational enterprise and welfare implications are analyzed.
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Horstmann et al. (1989) studied this question.