The proximity-concentration tradeoff under uncertainty
In this article, we analyse the firm's choice between serving a foreign market through exports or through foreign affiliate sales in an environment characterized by country-specific shocks to the cost of production. Our model predicts that country pairs with less-correlated output fluctuations trade more, relative to affiliate sales, whereas countries with more-volatile fluctuations are served relatively more by exporters than by foreign affiliates selling abroad. Using detailed data on trade and affiliate sales, we find empirical support for our model's predictions.
|Date of creation:||Oct 2013|
|Publication status:||Published in Review of Economic Studies, October, 2013, 80(4), pp. 1582-1621. ISSN: 0034-6527|
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