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Transportation Cost and the Geography of Foreign Investment

42 Pages Posted: 10 Jan 2017 Last revised: 21 Jan 2017

Laura Alfaro

Harvard University - Business, Government and the International Economy Unit

Maggie Xiaoyang Chen

George Washington University

Date Written: January 20, 2017

Abstract

Falling transportation costs and rapid technological progress in recent decades have precipitated an explosion of cross-border flows in goods, services, investments, and ideas led by multinational .rms. Extensive research has sought to understand the geographic patterns of foreign direct investment (FDI). This chapter reviews existing theories and evidence specifically addressing questions including: How is FDI distributed across space? Why does the law of gravity apply? How do the costs of transporting goods, tasks, and technologies influence firms’ decisions to separate tasks geographically and locate relative to one another? We discuss a variety of theoretical mechanisms through which transport cost and other geographic friction influence FDI and present the key empirical studies and findings.

Suggested Citation

Alfaro, Laura and Chen, Maggie Xiaoyang, Transportation Cost and the Geography of Foreign Investment (January 20, 2017). Harvard Business School BGIE Unit Working Paper No. 17-061. Available at SSRN: https://ssrn.com/abstract=2896128 or http://dx.doi.org/10.2139/ssrn.2896128

Laura Alfaro (Contact Author)

Harvard University - Business, Government and the International Economy Unit ( email )

Cambridge, MA 02138
United States

Maggie Xiaoyang Chen

George Washington University ( email )

710 21st Street NW
Washington, DC 20052
United States

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