The proximity-concentration tradeoff under uncertainty

Natalia Ramondo, Veronica Rappoport and Kim Ruhl

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In this article, we analyse the firm's choice between serving a foreign market through exports or through foreign affiliate sales in an environment characterized by country-specific shocks to the cost of production. Our model predicts that country pairs with less-correlated output fluctuations trade more, relative to affiliate sales, whereas countries with more-volatile fluctuations are served relatively more by exporters than by foreign affiliates selling abroad. Using detailed data on trade and affiliate sales, we find empirical support for our model's predictions.

Keywords: proximity-concentration; multinational firms; foreign direct investment; international trade; uncertainty (search for similar items in EconPapers)
JEL-codes: L81 (search for similar items in EconPapers)
Date: 2013-10
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Citations: View citations in EconPapers (55)

Published in Review of Economic Studies, October, 2013, 80(4), pp. 1582-1621. ISSN: 0034-6527

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http://eprints.lse.ac.uk/54268/ Open access version. (application/pdf)

Related works:
Journal Article: The Proximity-Concentration Tradeoff under Uncertainty (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:54268

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