Revisiting the proximity-concentration trade-off: Distance and Horizontal Foreign Direct Investment in OECD countries

Delphine Irac

Working papers from Banque de France

Abstract: This paper provides new insights in the link between distance and Foreign Direct Investment (FDI) in OECD countries. We find that the impact of distance on flows and stocks of FDI, controlling for exports, is negative and strongly significant, in line with gravity models, whereas in a standard proximity-concentration framework the impact should be positive. We propose a harmonized theoretical framework, allowing for distance increasing fixed costs, to reconcile these conflicting conclusions. This model is tested using alternative measures of distance (geographical/monetary/financial/legal/cultural) on OECD countries (1997-2001) and the impact of cultural distance appears strongly predominant in this setup.

Keywords: Foreign direct investment; Proximity-concentration trade-off; Distance; Gravity models; Cultural variables; Fixed costs. (search for similar items in EconPapers)
JEL-codes: F02 F15 F2 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:153

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