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The Effect of Communication Costs on Trade in Headquarter Services

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  • Cristea, Anca D.

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.

Suggested Citation

  • Cristea, Anca D., 2015. "The Effect of Communication Costs on Trade in Headquarter Services," MPRA Paper 61950, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:61950
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Li, Chen, 2015. "Do immigrants attract FDI? District-level evidence from Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113130, Verein für Socialpolitik / German Economic Association.
    2. Gumpert, Anna, 2015. "The organization of knowledge in multinational firms," Discussion Papers 33/2015, Deutsche Bundesbank.
    3. 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.
    4. 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.
    5. Fromenteau, Philippe, 2016. "Information Technology and Global Sourcing," Discussion Papers in Economics 29631, University of Munich, Department of Economics.
    6. Anna Gumpert, 2015. "The Organization of Knowledge in Multinational Firms," CESifo Working Paper Series 5401, CESifo Group Munich.
    7. Gumpert, Anna, 2017. "The Organization of Knowledge in Multinational Firms," Rationality and Competition Discussion Paper Series 29, CRC TRR 190 Rationality and Competition.
    8. 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).

    More about this item

    Keywords

    headquarter services; services trade; intra-firm trade; communication costs; telecommunication; knowledge transfers;

    JEL classification:

    • F1 - International Economics - - Trade

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