An Empirical Assessment of the Proximity/Concentration Tradeoff Between Multinational Sales and Trade (Classic Reprint) - Hardcover

Inhaltsangabe

Excerpt from An Empirical Assessment of the Proximity/Concentration Tradeoff Between Multinational Sales and Trade

Consider a two-sector, two-country world, where firms in a differentiated products sector choose between exporting and cross-border expansion as alternative modes of foreign market penetration. Demand is identical and homothetic acm classes of goods, and there is a constant elasticity of substitution, 0, among varieties of a good.

The differentiated sector is characterized by increasing returns at the firm level due to some input, such as r&d,that can be spread among any number of production facilities with undiminished value, scale economies at the plant level, such that concentrating production lowers unit costs, and a variable transport cost that rises with distance. The decision whether to expand abroad via trade or via investment hinges on a trade-off between these proximity advantages and scale advantages from concentrating production in a single location.

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