Abstract

http://ssrn.com/abstract=1964129
 
 

References (32)



 
 

Citations (3)



 
 

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A Linder Hypothesis for Foreign Direct Investment


Pablo D. Fajgelbaum


University of California, Los Angeles (UCLA)

Gene M. Grossman


Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Elhanan Helpman


Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

November 2011

CEPR Discussion Paper No. DP8639

Abstract:     
We study patterns of FDI in a multi-country world economy. First, we present evidence for a broad sample of countries that firms direct FDI disproportionately to markets with income levels similar to their home market. Then 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 FDI, consistent with the patterns found in the data.

Number of Pages in PDF File: 36

Keywords: FDI, monopolistic competition, multinational corporations, nested logit, product quality, trade, vertical specialization

JEL Classification: F12, F23

working papers series





Date posted: November 24, 2011  

Suggested Citation

Fajgelbaum, Pablo D. and Grossman, Gene M. and Helpman, Elhanan, A Linder Hypothesis for Foreign Direct Investment (November 2011). CEPR Discussion Paper No. DP8639. Available at SSRN: http://ssrn.com/abstract=1964129

Contact Information

Pablo D. Fajgelbaum (Contact Author)
University of California, Los Angeles (UCLA) ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
Gene M. Grossman
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
300 Fisher Hall
Prospect Avenue
Princeton, NJ 08544-1021
United States
609-258-4823 (Phone)
609-258-1374 (Fax)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States

CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Elhanan Helpman
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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Paper statistics
Abstract Views: 126
Downloads: 3
References:  32
Citations:  3
Footnotes:  17

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