Dynamics of Large Multinationals.

The article develops a dynamic model of large multinational enterprises (MNEs) characterized as oligopolistic multi-product firms that compete domestically and internationally while facing competition from small single-product firms. It focuses on the joint evolution of firms' overall product scope—expanded through research and development (R&D)—and the product span of their foreign affiliates—expanded through foreign direct investment (FDI). Key findings include a substitutability relationship whereby an increase in a firm's total product scope tends to reduce the product scope of its foreign subsidiaries, and the presence of non-monotonic dynamics both over time and across firms differing in productivity. The model is applied to analyze the effects of changes in trade and FDI costs (e.g., Brexit), mergers between large firms, and productivity improvements, showing how these factors influence prices, markups, market shares, exports relative to subsidiary sales, and welfare. The framework highlights complex interactions between innovation and multinational production, offering testable predictions about the dynamic behavior of MNEs and their foreign affiliates.