 Transportation Costs and US Manufacturing FDIJoseph Daniels and Marc Ruhr Review of International Economics, 2014, vol. 22, issue 2, 299-309 Abstract: In empirical models of foreign direct investment (FDI), distance is most often used to proxy for transportation costs and other pure-trade costs. Given that distance is time invariant but transportation costs are not, this approach is less than satisfactory when actual transportation costs rise and fall over time.The contribution of this work is to explicitly control for transportation costs and thereby better understand their impact on FDI. We explore the impact of shipping costs on total US FDI stocks abroad, manufacturing stocks and service stocks using measures of sea-shipping and air-shipping costs in a Hausman–Taylor model that controls for endogeneity and allows for time-invariant variables such as distance. We find that transportation costs have a positive and statistically significant relationship with US total and manufacturing FDI, suggesting a substitute relationship between FDI and trade flows consistent with horizontal MNE activity. As one would expect, these costs are insignificant for service stocks. Date: 2014 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:reviec:v:22:y:2014:i:2:p:299-309 Ordering information: This journal article can be ordered from Access Statistics for this article Review of International Economics is currently edited by E. Kwan Choi More articles in Review of International Economics from Wiley Blackwell |
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