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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.

Suggested Citation

  • Oldenski, Lindsay, 2012. "Export Versus FDI and the Communication of Complex Information," Journal of International Economics, Elsevier, vol. 87(2), pages 312-322.
  • Handle: RePEc:eee:inecon:v:87:y:2012:i:2:p:312-322
    DOI: 10.1016/j.jinteco.2011.12.012
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    1. Consoli, Davide & Rentocchini, Francesco, 2015. "A taxonomy of multi-industry labour force skills," Research Policy, Elsevier, vol. 44(5), pages 1116-1132.
    2. David H. Autor & David Dorn & Gordon H. Hanson, 2015. "Untangling Trade and Technology: Evidence from Local Labour Markets," Economic Journal, Royal Economic Society, vol. 0(584), pages 621-646, May.
    3. Püschel, Julia, 2012. "Task dependence of U.S. service offshoring patterns," Discussion Papers 2012/15, Free University Berlin, School of Business & Economics.
    4. Lücke, Matthias & Stöhr, Tobias, 2015. "Heterogeneous immigrants and foreign direct investment: The role of language skills," Kiel Working Papers 2009, Kiel Institute for the World Economy (IfW).
    5. Peter Neary & Monika Mrazova, 2011. "Selection Effects with Heterogeneous Firms," Economics Series Working Papers 588, University of Oxford, Department of Economics.
    6. KOMORIYA Yoshimasa, 2014. "How the Movement of Natural Persons Agreement Could Fuel FTAs," Discussion papers 14041, Research Institute of Economy, Trade and Industry (RIETI).
    7. Stefano Federico & Enrico Tosti, 2017. "Exporters and Importers of Services: Firm-Level Evidence on Italy," The World Economy, Wiley Blackwell, vol. 40(10), pages 2078-2096, October.
    8. Andrea Ariu & Giordano Mion, 2017. "Service Trade and Occupational Tasks: An Empirical Investigation," The World Economy, Wiley Blackwell, vol. 40(9), pages 1866-1889, September.
    9. Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
    10. Roberto Josep Martí & Maite Alguacil & Vicente Orts, 2013. "Where do foreign affiliates of Spanish multinational firms locate in developing and transition economies?," Working Papers 2013/19, Economics Department, Universitat Jaume I, Castellón (Spain).
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    12. Anselm Komla Abots, 2015. "Foreign Ownership of Firms and Corruption in Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 647-655.
    13. repec:bla:deveco:v:55:y:2017:i:2:p:75-104 is not listed on IDEAS
    14. Nicola D. Coniglio & Rezart Hoxhaj & Adnan Seric, 2017. "The demand for foreign workers by foreign firms: evidence from Africa," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 353-384, May.
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    16. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The Geography of Trade and Technology Shocks in the United States," American Economic Review, American Economic Association, vol. 103(3), pages 220-225, May.
    17. Eddy Bekkers & Indre Macskasi, 2015. "Sectoral Determinants of Foreign Affiliate Sales," Economics working papers 2015-07, Department of Economics, Johannes Kepler University Linz, Austria.
    18. Anna Gumpert, 2015. "The Organization of Knowledge in Multinational Firms," CESifo Working Paper Series 5401, CESifo Group Munich.
    19. Gumpert, Anna, 2017. "The Organization of Knowledge in Multinational Firms," Rationality and Competition Discussion Paper Series 29, CRC TRR 190 Rationality and Competition.
    20. 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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    23. Laura Alfaro & Maggie X. Chen, 2017. "Transportation Cost and the Geography of Foreign Investment," Harvard Business School Working Papers 17-061, Harvard Business School.
    24. repec:bla:reviec:v:25:y:2017:i:4:p:831-855 is not listed on IDEAS
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    More about this item

    Keywords

    Multinationals; Trade; Exports; FDI; Services; Tasks;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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