Multinational Firms and the Theory of International Trade and Investment: A Correction and A Stronger Conclusion.

Abstract

The purpose of this article is to correct some of the comparative analysis results to explore the implications of taxes and tariffs on resource allocation and international capital movement done by economists Raveendra Batra and Rama Ramachandran. They showed that the traditional models of international trade can preserve most of the attributes introduced by multinational firms. As part of their exposition, they conducted a comparative statistics analysis. The author shows some mathematical errors of Batra and Chandran's paper. The article describes implications of tariffs on the employment of labor and capital in each sector in each country. Making these corrections leads to some quantitative changes in their results even though their conclusions are still valid. The author will show that some stronger results follow so far as implications of tariffs on the rental on multinational capital is concerned. Imposition of tariffs on the host country's importables will definitely raise the rental on multinational capital.