The issues addressed in this thesis concern the implications of factor mobility through multinational firms on a country's specialization and comparative advantage.

Special attention is directed towards integration and the response by insider and outsider firms. Although focus is on the empirical analysis, the theoretical side is not neglected and both general equilibrium and partial equilibrium effects of FDI are considered in the thesis.

It is shown how the traditionally strong results in integration theory hinge on the assumption of factor mobility being restricted to sectors within a country, while allowing for international mobility generates ambiguous results with regard to specialization in production and trade.

The empirical analyses focus on the relation between the incidence of profits among firms and differences in their endowments of knowledge stocks, the effects of trade cost on FDI, differences in production costs and size of markets, and, finally, agglomeration patterns in the location of foreign subsidiaries.