A Model of Firms' Decisions to Export or Produce Abroad
AbstractThis paper is a theoretical analysis of the factors influencing production location decisions by a multinational corporation. It starts with a simple model of optimization for a firm facing the choice between exporting and producing abroad a single differentiated final product and then develops the model to take account of production of intermediate as well as final products, the existence of scale economies, and finally, the effects of transport cost and of factors affecting the cost of production. The share of foreign output is shown to be related to the level of transport cost, to the size of host-country markets, to host-country wage levels relative to those of the home country, in combination with labor intensities of production. All of these relationships in turn are shown to interact in various ways with economies of scale in affecting the choice of production locations.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0511.
Date of creation: Jul 1980
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- Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
- Robert E. Lipsey & Merle Yahr Weiss, 1975. "Exports and Foreign Investment in the Pharmaceutical Industry," NBER Working Papers 0087, National Bureau of Economic Research, Inc.
- Horst, Thomas, 1972. "Firm and Industry Determinants of the Decision to Invest Abroad: An Empirical Study," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 258-66, August.
- Robert E. Lipsey & Merle Yahr Weiss, 1976. "Exports and Foreign Investment in Manufacturing Industries," NBER Working Papers 0131, National Bureau of Economic Research, Inc.
- Horst, Thomas, 1971. "The Theory of the Multinational Firm: Optimal Behavior under Different Tariff and Tax Rates," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1059-72, Sept.-Oct.
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