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Working Paper
A Model of Global Firms and Capital Markets
We develop a general-equilibrium model of the global economy that integrates heterogeneous firms competing in product markets with countries that allocate capital around the world. Combining a hedonic demand system on the product side with a mean-variance portfolio system on the asset side, we obtain almost closed-form solutions for the equilibrium of the model. We use firm-level data on balance sheets, geographic breakdowns of revenue and employment, and business descriptions along with country-level data on bilateral equity holdings and trade costs to quantify the model to a cross section ...