International Business Cycles - the Role of Technology and Resource Transfers Via Multinationals

I develop a general equilibrium model of trade and multinational production (MP) with firm heterogeneity, market access frictions including a MP sunk cost, technology transfer from multinational parent to affiliate, and physical capital. There is a novel “resource transfer” channel as MP firms enter and exit over the business cycle with their capital. Compared to the resource transfer channel in standard trade models such as Backus et al. [1994], the new channel via multinationals leads to faster capital relocation across countries, which generates greater macroeconomic volatility. Technology transfer within MP firms dampens the effect of the novel resource transfer channel by altering the MP-exporter trade-off. A model calibrated to the United States generates output and net exports volatilities, persistence of most variables, and international consumption correlation closer to the data