Modelling the multinational corporation

Abstract

The thesis extends the theoretical work on the multinational corporation and on the reasons for foreign direct investment.

The reasons for foreign direct investment are considered by looking at a set of necessary and sufficient conditions for this type of investment to occur. This is extended by considering the range of objectives that a firm may have and by using the approaches of the managerial theories of the firm to look at the processes by which firms expand and diversify, where this includes expansion into foreign markets.

The multinational corporation was considered in terms of a mathematical model of a profit maximizing firm. The static models in the existing literature were reviewed by developing a more general model, that includes many of these as special cases. This was extended by developing a dynamic model. Two mathematical approaches were used; optimal control theory and dynamic programming. These were used to consider the response of the multinational corporation to changes in elements of its external environment such as, profit taxes, import tariffs, and market size. The responses considered included: qualitative changes in the levels of production and trade undertaken by the multinational in the two equilibrium positions; and the levels of investments and the adjustment in capital stock required to move from one equilibrium position to the other.