This article by James R. Markusen, published in 2002, discusses the role of multinational firms in international trade theory and presents a new approach to understanding their behavior. Markusen critiques traditional trade theory, which focuses on general-equilibrium models and assumes that firms are price takers. He argues that this approach fails to account for the complexities of multinational firms, which make strategic decisions about where to locate production and how to structure their operations. Markusen introduces a new framework that incorporates industrial-organization concepts into trade theory, allowing for the endogenous determination of firm location and ownership decisions. He presents a series of models that analyze the behavior of multinational firms, including partial-equilibrium and general-equilibrium models. These models examine issues such as the relationship between trade and affiliate production, the effects of trade and investment liberalization on factor prices, and the location of production. The book also explores the concept of internalization, which refers to the different ways in which firms serve foreign markets. Markusen analyzes various modes of foreign production, including exports, foreign direct investment, and licensing. He argues that these different modes have different implications for trade and investment policies. Markusen also discusses the limitations of traditional trade theory, noting that it often ignores the importance of firm-level decisions and the role of multinational firms in the global economy. He emphasizes the need for a more comprehensive approach to trade theory that incorporates the complexities of multinational firms. The book is structured into three main parts: theoretical models, empirical estimation and testing, and internalization. Markusen provides a detailed analysis of the theoretical models, including both analytical and numerical methods. He also presents empirical evidence and discusses the implications of his findings for trade and investment policy. The book concludes with a discussion of the limitations of traditional trade theory and the need for a more comprehensive approach to understanding multinational firms in international trade.This article by James R. Markusen, published in 2002, discusses the role of multinational firms in international trade theory and presents a new approach to understanding their behavior. Markusen critiques traditional trade theory, which focuses on general-equilibrium models and assumes that firms are price takers. He argues that this approach fails to account for the complexities of multinational firms, which make strategic decisions about where to locate production and how to structure their operations. Markusen introduces a new framework that incorporates industrial-organization concepts into trade theory, allowing for the endogenous determination of firm location and ownership decisions. He presents a series of models that analyze the behavior of multinational firms, including partial-equilibrium and general-equilibrium models. These models examine issues such as the relationship between trade and affiliate production, the effects of trade and investment liberalization on factor prices, and the location of production. The book also explores the concept of internalization, which refers to the different ways in which firms serve foreign markets. Markusen analyzes various modes of foreign production, including exports, foreign direct investment, and licensing. He argues that these different modes have different implications for trade and investment policies. Markusen also discusses the limitations of traditional trade theory, noting that it often ignores the importance of firm-level decisions and the role of multinational firms in the global economy. He emphasizes the need for a more comprehensive approach to trade theory that incorporates the complexities of multinational firms. The book is structured into three main parts: theoretical models, empirical estimation and testing, and internalization. Markusen provides a detailed analysis of the theoretical models, including both analytical and numerical methods. He also presents empirical evidence and discusses the implications of his findings for trade and investment policy. The book concludes with a discussion of the limitations of traditional trade theory and the need for a more comprehensive approach to understanding multinational firms in international trade.