The economic analysis of multinationals and foreign direct investment: A review

This article provides an up-to-date, comprehensive synthesis and evaluation of the existing literature on multinational firms and foreign direct investment. Unlike most previous reviews it combines several insights showing their inconsistencies and complementarities. Through a chronological description it presents the main strands since the earliest perfect competition studies from the 1960s till some new recent contributions such as the knowledge-capital model, heterogeneous firms models, and internalisation issues. The paper also offers a new perspective, by reviewing the available computable general equilibrium models that include multinationals and foreign direct investment.