The theory and measurement of the net benefits of multinationality: the case of the international petroleum industry

Internalization is one of the most important factors for foreign direct investment and multinationality. Going multinational brings some gains. The empirical evidence presented provides an objective quantitative measure of the gains of being a multinational firm in the petroleum refining industry. It is estimated that multination-ality increases scale efficiency by approximately 3% and reduces business risk by approximately 43%. However, the gains of multinationality cannot be attained without incurring some costs. The cost of expanding the firs’s operation beyond its national boundaries is estimated to be approximately a 10% reduction in the firm’s overall economic efficiency.