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Why do Multinationals exist? The Role of Knowledge and Services

This project examines the role of services in global value chains. More specifically, we aim to gain an understanding of an unexpected result which was recently highlighted in the international trade literature (Ramondo et al., 2013, Atalay et al., 2013): empirically, the quantity of goods traded between multinationals and their foreign subsidiaries is remarkably low. If not to facilitate the movement of physical goods along their supply chain, then why do multinationals pursue vertical foreign direct investment? We suspect (like Atalay et al., 2013) that the transfer of services, as well as other intangibles, is likely the explanation for this phenomenon.