ABSTRACT
Recent efforts by international trade economics have led to the integration of the theory of the multinational corporation (MNC) into the theory of international trade. This is both an exciting and an important development. Prior to the last decade or so, analysis of the MNC was largely distinct from trade theory. The former was partial equilibrium in nature, while trade theory maintained the assumptions of constant returns to scale and perfect competition, which generally precluded any discussion of multinational firms by definition. Beginning about 1980, the industrial-organization approach to trade began developing generalequilibrium models with increasing returns to scale and imperfect competition. Yet the multinational firm was generally missing, in spite of having precisely these characteristics.
