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Export Versus FDI and the Communication of Complex Information

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  • Oldenski, Lindsay

Abstract

Traditional proximity-concentration models of the decision to serve foreign markets through exports or FDI sales tend to overemphasize physical transport costs and market size while underemphasizing the cost of transmitting information. I augment those models with the importance of interacting with customers and communicating complex information within firms and use these characteristics to predict the location of production. Goods and services requiring direct communication with consumers are more likely to be produced in the destination market. Activities requiring complex within firm communication are more likely to occur at the multinational's headquarters for export, especially when the destination market has weak institutions. These predictions are tested using firm-level data from the Bureau of Economic Analysis US Direct Investment Abroad Benchmark Survey of Multinationals combined with task-level data from the Department of Labor's Occupational Information Network. The approach developed in this paper performs well for both manufacturing and service industries and is robust to a variety of specifications.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 87 (2012)
Issue (Month): 2 ()
Pages: 312-322

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Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:312-322

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Multinationals; Trade; Exports; FDI; Services; Tasks;

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References

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Citations

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Cited by:
  1. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The Geography of Trade and Technology Shocks in the United States," NBER Working Papers 18940, National Bureau of Economic Research, Inc.
  2. Autor, David & Dorn, David & Hanson, Gordon H., 2013. "Untangling Trade and Technology: Evidence from Local Labor Markets," IZA Discussion Papers 7329, Institute for the Study of Labor (IZA).
  3. Schmeiser, Katherine N., 2013. "The firm export and FDI choice in the context of gravity," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 592-596.
  4. PĆ¼schel, Julia, 2012. "Task dependence of U.S. service offshoring patterns," Discussion Papers 2012/15, Free University Berlin, School of Business & Economics.
  5. Stefano Federico & Enrico Tosti, 2012. "Exporters and importers of services: firm-level evidence on Italy," Temi di discussione (Economic working papers) 877, Bank of Italy, Economic Research and International Relations Area.
  6. Li, Zhiyuan, 2013. "Task offshoring and organizational form: Theory and evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 358-380.

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