Three essays on international trade and multinational firms

This dissertation consists of three essays exploring the effects of economic integration, trade policy, and tax policy on the location and production decisions of multinational firms. In particular, it investigates the motivations for a multinational firm to establish a foreign affiliate that not only makes local sales in the host country, but also exports to foreign markets, an activity known as export platform foreign direct investment (export platform FDI).;In recent years, exports by affiliates of US multinational firms have grown faster than local sales by those affiliates. US multinational firms are increasingly using foreign affiliates to not only serve the host country market, but also export to foreign markets. The first chapter of the dissertation, "Motivations for Export Platform FDI as a Strategy for Serving Foreign Markets," empirically investigates characteristics of countries that tend to attract export platform FDI. A significant contribution of this chapter is to emphasize the importance of understanding the motivations for export platform FDI as distinct from the motivations for FDI for local sales to the host country. The findings are that export platform FDI by affiliates of US multinational firms is more prevalent in countries have greater export market potential, as measured by the host country's proximity to other large markets, and are members of preferential trade agreements in which the US is not also a member.;The second chapter of the dissertation, "Using Trade Policy to Influence Firm Location," examines how one country's trade policy can affect another country's ability to attract FDI, and how, in the presence of economic integration in the form of a free trade area (FTA), governments can adjust their external trade policies to influence firm location. Interestingly, even if a country cannot itself attract FDI, its government can use trade policy to influence whether or not other countries are able to attract export platform FDI. A case is examined in which the formation of a FTA results in "FDI destruction," a multinational firm's decision to shut down an established foreign affiliate. The striking result is that this decision depends not only on the host country's policies, but also on the trade policies of other countries in the FTA.;The third chapter of the dissertation, "Preferential Trade Agreements and Tax Competition with Internationally Mobile Firms," extends existing models of international tax competition to incorporate the activities of multinational firms headquartered outside the competing regions. In the absence of a preferential trade agreement (PTA), governments use positive taxes to exercise market power over the profits that internationally mobile firms must receive to locate within their borders. That is, FDI by multinational firms is for local sales to the host country only, and foreign affiliates face positive taxes in the host country. However, when two identical countries form a PTA, tax competition drives equilibrium taxes to zero, as each country attempts to increase its tax base within the PTA at the expense of the other country's tax base. As a result, each country in the PTA attracts more FDI from the rest of the world than it otherwise would, and each affiliate serves as an export platform for the other country in the PTA.