A Linder Hypothesis for Foreign Direct Investment

Pablo Fajgelbaum (), Gene Grossman and Elhanan Helpman

No 17550, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study patterns of FDI in a multi-country world economy. We develop a model featuring non-homothetic preferences for quality and monopolistic competition in which specialization is purely demand-driven and the decision to serve foreign countries via exports or FDI depends on a proximity-concentration trade-off. We characterize the joint patterns of trade and FDI when countries differ in income distribution and size and show that FDI is more likely to occur between countries with similar per capita income levels. The model predicts a Linder Hypothesis for horizontal FDI, which is consistent with the patterns we find using establishment-level data on multinational activity.

JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-int and nep-opm
Note: ITI
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Citations: View citations in EconPapers (10)

Published as P. Fajgelbaum & G. M. Grossman & E. Helpman, 2015. "A Linder Hypothesis for Foreign Direct Investment," The Review of Economic Studies, vol 82(1), pages 83-121.

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Related works:
Journal Article: A Linder Hypothesis for Foreign Direct Investment (2015)
Working Paper: A Linder Hypothesis for Foreign Direct Investment (2013)
Working Paper: A Linder Hypothesis for Foreign Direct Investment (2011)
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