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This paper oﬀers a uniﬁed framework to explore both the static and dynamic welfare eﬀects of trade and multinational production (MP) in the presence of ﬁrm-speciﬁc productivity heterogeneity. The model captures the dynamic eﬀects by allowing for R&D spillovers between ﬁrms in a framework of Helpman et al. (2004) that generates endogenous growth without scale eﬀects. We show that multinational presence improves average productivity by strengthening the selection process among heterogeneous ﬁrms, but leads to a lower growth rate of intermediate varieties along the transition path toward the new steady state. Thus the presence of multinationals has an ambiguous eﬀect on overall welfare. We also compare the welfare implications of a change in trade cost in our model and in trade models without multinationals. We ﬁnd that the gains from trade can be higher or lower than the gains obtained in the trade-only models, depending on the degree of ﬁrm heterogeneity, the size of trade and FDI costs, and the magnitude of technology spillover parameters. We further show that ﬁrm heterogeneity always magniﬁes average productivity, international spillovers and ﬁxed costs of developing a new variety, which leads to ambiguous eﬀects on overall welfare. Calibrating the model to the US economy suggests that aggregate welfare improves in response to a reduction in trade and FDI costs for empirically plausible parameter values.