IDEAS home Printed from https://ideas.repec.org/a/spr/weltar/v151y2015i2p255-289.html
   My bibliography  Save this article

The effect of communication costs on trade in headquarter services

Author

Abstract

Communication is a real barrier to organizing international production as it hinders knowledge transmission. This paper provides evidence to suggest that a way in which multinational firms economize on costly information transfers is by using skilled foreign workers, since local talent can substitute for knowledge inputs from the headquarters. Combining U.S. data on headquarter service exports with information on communication costs and skill endowments by country, I find that while communication costs decrease the export of headquarter services to foreign affiliates, the effect becomes weaker in the average educational attainment of foreign workers. The sensitivity of headquarter service exports to communication barriers at low levels of skill endowment has important implications for the geography of multinational production, as well as for policies aimed at improving communication infrastructure. Copyright Kiel Institute 2015

Suggested Citation

  • Anca Cristea, 2015. "The effect of communication costs on trade in headquarter services," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(2), pages 255-289, May.
    • Handle: RePEc:spr:weltar:v:151:y:2015:i:2:p:255-289
    DOI: 10.1007/s10290-015-0214-0
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10290-015-0214-0
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10290-015-0214-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2003. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 980-994, June.
    2. Head, Keith & Mayer, Thierry & Ries, John, 2009. "How remote is the offshoring threat?," European Economic Review, Elsevier, vol. 53(4), pages 429-444, May.
    3. David L. Carr & James R. Markusen & Keith E. Maskus, 2021. "Estimating The Knowledge-Capital Model of the Multinational Enterprise," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 5, pages 95-110, World Scientific Publishing Co. Pte. Ltd..
    4. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2010. "Intrafirm Trade and Product Contractibility," American Economic Review, American Economic Association, vol. 100(2), pages 444-448, May.
    5. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2013. "The Determinants of Intrafirm Trade: Evidence from French Firms," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 825-838, July.
    6. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, April.
    7. Freund, Caroline L. & Weinhold, Diana, 2004. "The effect of the Internet on international trade," Journal of International Economics, Elsevier, vol. 62(1), pages 171-189, January.
    8. Fabrice Defever, 2012. "The spatial organization of multinational firms," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 672-697, May.
    9. Anna Gumpert, 2018. "The Organization of Knowledge in Multinational Firms," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1929-1976.
    10. repec:hal:pseose:halshs-00879809 is not listed on IDEAS
    11. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(1), pages 31-77.
    12. Bruce A. Blonigen & Lindsay Oldenski & Nicholas Sly, 2019. "The Differential Effects of Bilateral Tax Treaties," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 7, pages 235-263, World Scientific Publishing Co. Pte. Ltd..
    13. Gaspar, Jess & Glaeser, Edward L., 1998. "Information Technology and the Future of Cities," Journal of Urban Economics, Elsevier, vol. 43(1), pages 136-156, January.
    14. David J. Teece, 2008. "Technology Transfer By Multinational Firms: The Resource Cost Of Transferring Technological Know-How," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 1, pages 1-22, World Scientific Publishing Co. Pte. Ltd..
    15. Wolfgang Keller & Stephen Ross Yeaple, 2013. "The Gravity of Knowledge," American Economic Review, American Economic Association, vol. 103(4), pages 1414-1444, June.
    16. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
    17. Gene Grossman, 2013. "Heterogeneous workers and international trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(2), pages 211-245, June.
    18. Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2013. "The Margins of Multinational Production and the Role of Intrafirm Trade," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 74-126.
    19. Anca D. Cristea & Daniel X. Nguyen, 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 170-202, August.
    20. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    21. Stephen Ross Yeaple, 2006. "Offshoring, Foreign Direct Investment, and the Structure of U.S. Trade," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 602-611, 04-05.
    22. Arrow, Kenneth J, 1969. "Classificatory Notes on the Production and Transmission of Technological Knowledge," American Economic Review, American Economic Association, vol. 59(2), pages 29-35, May.
    23. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1375-1418.
    24. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
    25. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    26. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, August.
    27. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    28. Cristea, Anca D., 2011. "Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel," Journal of International Economics, Elsevier, vol. 84(2), pages 207-220, July.
    29. repec:hrv:faseco:4784031 is not listed on IDEAS
    30. Head, Keith & Mayer, Thierry & Ries, John, 2009. "How remote is the offshoring threat?," European Economic Review, Elsevier, vol. 53(4), pages 429-444, May.
    31. Runjuan Liu & Dorothee J Feils & Barry Scholnick, 2011. "Why are different services outsourced to different countries?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(4), pages 558-571, May.
    32. repec:hal:spmain:info:hdl:2441/10144 is not listed on IDEAS
    33. Yeaple, Stephen Ross, 2009. "Firm heterogeneity and the structure of U.S. multinational activity," Journal of International Economics, Elsevier, vol. 78(2), pages 206-215, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Chen, 2015. "Do immigrants attract FDI? District-level evidence from Germany," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113130, Verein für Socialpolitik / German Economic Association.
    2. Julian Donaubauer & Alexander Glas & Birgit Meyer & Peter Nunnenkamp, 2018. "Disentangling the impact of infrastructure on trade using a new index of infrastructure," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(4), pages 745-784, November.
    3. Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Headquarters intangible capital and FDI," Working Papers 2107, Department of Applied Economics II, Universidad de Valencia.
    4. Xiaomiao Yin & Lirong Xing & Chunxiao Cui, 2023. "The Impact of Multi-Dimensional Vectors on China’s Agricultural Products Export: Based on fsQCA," Agriculture, MDPI, vol. 13(9), pages 1-14, September.
    5. Anna Gumpert, 2018. "The Organization of Knowledge in Multinational Firms," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1929-1976.
    6. Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2022. "Regional headquarters and foreign direct investment," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1288-1310, September.
    7. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2016. "Homeward bound FDI: Are migrants a bridge over troubled finance?," Economic Modelling, Elsevier, vol. 58(C), pages 454-465.
    8. 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.
    9. Fromenteau, Philippe, 2016. "Information Technology and Global Sourcing," Discussion Papers in Economics 29631, University of Munich, Department of Economics.
    10. Donaubauer, Julian & Glas, Alexander & Nunnenkamp, Peter, 2015. "Infrastructure and trade: A gravity analysis for major trade categories using a new index of infrastructure," Kiel Working Papers 2016, Kiel Institute for the World Economy (IfW Kiel).
    11. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2019. "Migration and FDI: The role of job skills," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 318-332.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    2. Blyde, Juan & Molina, Danielken, 2015. "Logistic infrastructure and the international location of fragmented production," Journal of International Economics, Elsevier, vol. 95(2), pages 319-332.
    3. Maria Borga & Perla Ibarlucea Flores & Monika Sztajerowska, 2020. "Drivers of divestment decisions of multinational enterprises - A cross-country firm-level perspective," OECD Working Papers on International Investment 2019/03, OECD Publishing.
    4. Laura Alfaro & Maggie Xiaoyang Chen, 2018. "Transportation cost and the geography of foreign investment," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 12, pages 369-406, Edward Elgar Publishing.
    5. Anna Gumpert, 2018. "The Organization of Knowledge in Multinational Firms," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1929-1976.
    6. Wolfgang Keller & Stephen R. Yeaple, 2008. "Global Production and Trade in the Knowledge Economy," NBER Working Papers 14626, National Bureau of Economic Research, Inc.
    7. Davide Castellani & Giulio Giangaspero & Antonello Zanfei, 2013. "Heterogeneity and distance. Some propositions on how differences across regions, firms and functions affect the role of distance in FDI location decisions," Working Papers 1308, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2013.
    8. Chen, Maggie Xiaoyang & Lin, Chuanhao, 2020. "Geographic connectivity and cross-border investment: The Belts, Roads and Skies," Journal of Development Economics, Elsevier, vol. 146(C).
    9. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2021. "Is there a euro effect in the drivers of US FDI? New evidence using Bayesian model averaging techniques," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 881-926, November.
    10. Cristea, Anca D., 2011. "Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel," Journal of International Economics, Elsevier, vol. 84(2), pages 207-220, July.
    11. Kiyoyasu Tanaka, 2015. "Firm Heterogeneity and FDI in Distribution Services," The World Economy, Wiley Blackwell, vol. 38(8), pages 1295-1311, August.
    12. Nguyen, Anh T.N. & Haug, Alfred A. & Owen, P. Dorian & Genç, Murat, 2020. "What drives bilateral foreign direct investment among Asian economies?," Economic Modelling, Elsevier, vol. 93(C), pages 125-141.
    13. Fromenteau, Philippe, 2016. "Information Technology and Global Sourcing," Discussion Papers in Economics 29631, University of Munich, Department of Economics.
    14. Kox, Henk L.M., 2022. "A micro-macro model of foreign direct investment: knowledge-based gravity forces, self-selection and third-country effects," MPRA Paper 115542, University Library of Munich, Germany.
    15. Okubo, Toshihiro & Watabe, Yuta, 2023. "Networked FDI and third-country intra-firm trade," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 591-606.
    16. Sotiris Blanas & Adnan Seric, 2018. "Determinants of intra‐firm trade: Evidence from foreign affiliates in Sub‐Saharan Africa," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 917-956, September.
    17. Wolfgang Keller & Stephen Ross Yeaple, 2013. "The Gravity of Knowledge," American Economic Review, American Economic Association, vol. 103(4), pages 1414-1444, June.
    18. Abdullah Kumas & Daniel L. Millimet, 2018. "Reassessing the effects of bilateral tax treaties on US FDI activity," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 451-470, July.
    19. Caleb Stroup, 2017. "International Deal Experience And Cross-Border Acquisitions," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 73-97, January.
    20. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.

    More about this item

    Keywords

    Headquarter services; Services trade; Intra-firm trade; Communication costs; Telecommunication; Knowledge transfers; F1;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:weltar:v:151:y:2015:i:2:p:255-289. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.