This paper by Elhanan Helpman reviews the literature on the organization of firms in response to changes in trade and investment patterns. It highlights the need for new theoretical approaches to understand the reorganization of production across national borders, particularly the involvement of business firms in foreign activities. The paper discusses the theoretical refinements that have focused on individual firms, studying their choices in response to their characteristics, industry nature, and opportunities from foreign trade and investment. Key choices include organizational features such as sourcing strategies. The theory has also studied the implications of firm behavior for industry structure, providing new explanations for trade structure and patterns of foreign direct investment (FDI) within and across industries, and identifying new sources of comparative advantage. The paper examines models of heterogeneous firms, where the internalization decision (outourcing versus integration) is simplified, and explores the implications of incomplete contracts for internalization and offshoring decisions. It discusses empirical evidence supporting these theoretical models and their implications for trade and FDI. The paper also addresses the role of productivity differences and fixed costs in export decisions, the impact of trade liberalization on firm behavior, and the complexity of integration strategies by multinational corporations.This paper by Elhanan Helpman reviews the literature on the organization of firms in response to changes in trade and investment patterns. It highlights the need for new theoretical approaches to understand the reorganization of production across national borders, particularly the involvement of business firms in foreign activities. The paper discusses the theoretical refinements that have focused on individual firms, studying their choices in response to their characteristics, industry nature, and opportunities from foreign trade and investment. Key choices include organizational features such as sourcing strategies. The theory has also studied the implications of firm behavior for industry structure, providing new explanations for trade structure and patterns of foreign direct investment (FDI) within and across industries, and identifying new sources of comparative advantage. The paper examines models of heterogeneous firms, where the internalization decision (outourcing versus integration) is simplified, and explores the implications of incomplete contracts for internalization and offshoring decisions. It discusses empirical evidence supporting these theoretical models and their implications for trade and FDI. The paper also addresses the role of productivity differences and fixed costs in export decisions, the impact of trade liberalization on firm behavior, and the complexity of integration strategies by multinational corporations.