Multinational firms, market integration, and trade structure: What remains of the standard-goods hypothesis?

Multinational Firms, Market Integration, and Trade Structure: What Remains of the Standard-Goods Hypothesis? — In extending traditional empirical trade models to multinational firms, this paper shows the effect of the transfer of firm-specific technology and intangible assets by these firms on the structure of host countries. For Belgium, a small open economy with a large presence of foreign multinationals, this effect is of crucial importance and previous studies appeared to have produced biased results by neglecting it. The econometric results show how the large multinational presence induced by the European integration has shifted Belgium’s trade structure towards differentiated products, thereby challenging the standard-goods hypothesis which states that small countries tend to specialize in nondifferentiated products. Spain and Ireland have witnessed an increase in foreign direct investment and a shift in trade structure similar to Belgium after joining the EC.