International trade and investment.

• Position: National Bureau of Economic Research's Program on International Trade and Investment

On March 27 and 28, members and guests of the NBER's Program on International Trade and Investment met to discuss their recent research. Program Director Robert C. Feenstra, also of the University of California, Davis, organized the program:

James R. Markusen, NBER and University of Colorado; and David Carr and Keith Maskus, University of Colorado, "Testing the Knowledge-Capital Model of Multinational Enterprise"

Shang-Jin Wei, NBER and Harvard University, "Why is Corruption So Much More Taxing than Tax? Arbitrariness Kills" (NBER Working Paper No. 6255)

Alessandra Casella, NBER and Columbia University, and James E. Rauch, NBER and University of California, San Diego, "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties"

Gordon H. Hanson, NBER and University of Texas, "Market Potential, Increasing Returns, and Geographic Concentration" (NBER Working Paper No. 6429)

Dan Ben-David, NBER and Tel-Aviv University, and Michael Loewy, University of Houston, "Free Trade, Growth, and Convergence" (NBER Working Paper No. 6095)

Kenneth F. Scheve, Harvard University, and Matthew J. Slaughter, NBER and Dartmouth University, "What Determines Individual Trade-Policy Preferences?"

Xavier Gabaix, Harvard University, "The Factor Content of Trade: A Rejection of the Heckscher-Ohlin-Leontief Hypothesis"

Carr, Markusen, and Maskus explain that the "knowledge-capital model" of the multinational firm includes three principal assumptions. First, knowledge-based and knowledge-generating activities, such as R and D, can be separated geographically from production and supplied to production facilities at low cost. Second, these knowledge-intensive activities are skilled-labor intensive relative to production; that gives rise to vertical multinationals, which in turn fragment production and locate their activities according to factor prices and market size. Third, knowledge-based and knowledge-generating activities have a (partial) joint-input characteristic, in that they can be supplied to additional production facilities at low or zero cost; that gives rise to horizontal multinationals, which produce the same goods or services in multiple locations.

Wei analyzes the effect of corruption-induced uncertainty on foreign direct investment. His measure of uncertainty is based on unpublished responses by individuals to a survey on levels of corruption in "host countries." The result is striking - the effect of uncertainty on FDI is...