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Distance, Trade and FDI: A Hausman-Taylor SUR Approach

  • Peter Egger


  • Michael Pfaffermayr


This paper analyses the effects of distance as a common determinant of exports and FDI in a three-factor New Trade Theory model, assuming that distance affects both pure trade costs and plant set-up costs. Exports and FDI are not necessarily substitutes with respect to distance, since the predicted impact depends on its importance for fixed plant set-up costs relative to transportation costs and on the relative importance of vertical MNEs. For the empirical specification, we suggest that the impact of time-invariant variables such as distance is most appropriately analysed in a Hausman-Taylor SUR model. We apply our model to industry-level data of bilateral outward FDI stocks and exports of the US and Germany. Copyright © 2004 John Wiley & Sons, Ltd.

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Paper provided by WIFO in its series WIFO Working Papers with number 164.

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Length: 24 pages
Date of creation: 07 Nov 2001
Date of revision:
Handle: RePEc:wfo:wpaper:y:2001:i:164
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