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The Spatial Pattern of FDI: Some Testable Hypotheses

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Abstract

This paper is a simple extension of the standard FDI model of Markusen and Horstmann (1992). This latter predicts firms would supply nearby markets with exports but far away markets with FDI. Nevertheless, this does not match the spatial pattern in the data for many home nations and industries. We propose a model with heterogeneous firms where the spatial pattern of FDI depends upon distance-linked communications costs as well as trade costs; the resulting model lines up both with the aggregate knowledge-capital model evidence and the firm-level evidence of Helpman-Melitz-Yeaple, while still allowing individual firms to engage in FDI in nearby markets while supplying distant markets via exports.

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  • Pamela Bombarda, 2007. "The Spatial Pattern of FDI: Some Testable Hypotheses," IHEID Working Papers 24-2007, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp24-2007
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    Cited by:

    1. Sebastian Krautheim, 2013. "Export-supporting FDI," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1571-1605, November.
    2. Pamela Bombarda, 2011. "Intra-firm and arm's length trade: how distance matters?," Working Papers hal-00877199, HAL.
    3. Pamela Bombarda & Stefania Marcassa, 2017. "Welfare and Trade Margins with Multinational Production," THEMA Working Papers 2017-14, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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