Rethinking Overseas Production: The Case of COVID-19‎ and Negative Externality

Abstract

Based on the negative externality argument, we illustrate that international production is a suboptimal solution from the societal perspective of a multinational company’s home country, because moving production abroad can lead to insufficient production in the home country, and excess production abroad. The suboptimal outcome increases with the essentiality of the product. The present argument and results are relevant to policymakers and managers of multinationals, in addition to being useful in the classroom as an additional perspective that shows the complexity of international trade and international production locations.