Handbook of International Economics

7.3 Empirical Evidence

Empirically testing models of the various determinants of the internalization decision of multinational firms poses at least two important challenges. First, data on the internalization decisions of multinational firms are not readily available. The existing datasets on the operations of multinational firms generally contain only limited information on their market transactions, and even less is known about arm’s-length exchanges that do not involve multinational firms on either side. A second concern in testing theories of internalization is that the predictions from these theories are associated with subtle features of the environment—such as rent dissipation, relationship-specificity, contractibility, or the relative ...