The modern theory of multinational firm as elabtorated in the studies of Ethier
( 1986), Helpman ( 1984) and Markusen ( 1984) has focused primarily on the benefits
of large operations and utilization of economies of scope and scale. While Ethier
focused on explicit modeling and advantages of internationalization, Helpman and
Markusen studied the ownership advantages and trade factors. Ethier and Horn
(1990) added the dimension of organizational structure and managerial control to
the general equilibrium model of international allocation of factors by multinationals.
In a further extension, Horstmann and Markusen (1996) studied the question
of FDI versus initial contracting with local agents. The modern theory is, in effect,
a formal refinement of the traditional framework that considers multionational firms
a consequence of the coincidence of ownership advantages, locational advantages
and gains from internationalization.