Offshoring to your next door neighbor

Wolfgang Keller and Stephen Yeaple: There is “a clear negative relationship between the sales of US multinational affiliates and the trade costs (physical and policy barriers) from the US. In addition to the usual gravity finding – larger markets attract more sales – Figure 1 indicates that offshoring is helped by geographic proximity.”

1 thought on “Offshoring to your next door neighbor”

  1. Mi Dai

    interesting. Seems the relation between proximity and FDI value should be different for horizontal FDI and vertical FDI? The main incentive to conduct horizontal FDI is to save trade cost so FDI should decrease with proximity. In Figure 1 I do find some developed countries, where horizontal FDI from the U.S. firms should dominate. a little bit puzzling if what the author captures here is horizontal FDI instead of vertical ones.

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