The result shows that Figure 4 and Figure 5 are almost the same. This means that is crucial for determining the operational pattern of firms. Figure 5 Equilibrium when trade costs of both goods are lowered () on the above analyses, it can be said that horizontal MNEs are more likely to exist when countries are similar in size and in relative factor endowments. Vertical MNEs are more likely to exist when countries differ in relative factor endowments, and trade costs are positive. From the results of the simulation, lower trade costs of final goods and differences in factor intensity are the conditions for attracting vertical MNEs. Overall, we have obtained some idea from the simulation analyses, but in order gain a deeper insight, we pick up three cells and examine those. We label these three cells in the box as CHN (China), JPN (Japan), and MLY (Malaysia) according to their factor endowments relative to the United States. Note that the factor endowment of the United States is measured from the southwest corner, while that of the other labeled countries is measured from the northeast corner. The location of the labeled country is determined by the share of factor endowment. For example, the location of Japan is upper-right from the center, since Japan has a 40% share of unskilled labor and 30% share of skilled labor if there are only two countries, Japan and the United States, in the world. The locations of the other countries are determined in the same manner. The for the case of the US and China (CHN) in Figure 2 is 10.010, and the number means that type-v1 and -d2 firms arise in the equilibrium regime. Other than Figure 2, only type-v1 firms are active with lowering transportation cost for final or intermediate goods. In other words, type-d1 firms are crowded out by type-v1 firms. Type-v1 firms install their affiliates in China aiming at abundant unskilled labor. If a country like China with abundant unskilled labor wants to keep domestic firms (type dj), then the transportation cost for both goods needs to be high. The for the JPN cell in Figure 2 is 101.1, which means that there are -h1, and -h2 firms. Type-d1 firms are crowded out and only type-h firms arise if the transportation cost for intermediate goods is lowered. On the other hand, if the
The result shows that Figure 4 and Figure 5 are almost the same. This means that is crucial for determining the operational pattern of firms. Figure 5 Equilibrium when trade costs of both goods are lowered () on the above analyses, it can be said that horizontal MNEs are more likely to exist when countries are similar in size and in relative factor endowments. Vertical MNEs are more likely to exist when countries differ in relative factor endowments, and trade costs are positive. From the results of the simulation, lower trade costs of final goods and differences in factor intensity are the conditions for attracting vertical MNEs. Overall, we have obtained some idea from the simulation analyses, but in order gain a deeper insight, we pick up three cells and examine those. We label these three cells in the box as CHN (China), JPN (Japan), and MLY (Malaysia) according to their factor endowments relative to the United States. Note that the factor endowment of the United States is measured from the southwest corner, while that of the other labeled countries is measured from the northeast corner. The location of the labeled country is determined by the share of factor endowment. For example, the location of Japan is upper-right from the center, since Japan has a 40% share of unskilled labor and 30% share of skilled labor if there are only two countries, Japan and the United States, in the world. The locations of the other countries are determined in the same manner. The for the case of the US and China (CHN) in Figure 2 is 10.010, and the number means that type-v1 and -d2 firms arise in the equilibrium regime. Other than Figure 2, only type-v1 firms are active with lowering transportation cost for final or intermediate goods. In other words, type-d1 firms are crowded out by type-v1 firms. Type-v1 firms install their affiliates in China aiming at abundant unskilled labor. If a country like China with abundant unskilled labor wants to keep domestic firms (type dj), then the transportation cost for both goods needs to be high. The for the JPN cell in Figure 2 is 101.1, which means that there are -h1, and -h2 firms. Type-d1 firms are crowded out and only type-h firms arise if the transportation cost for intermediate goods is lowered. On the other hand, if the