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This paper examines the extent to which multinational location decisions reflect a trade-off between achieving proximity to customers and concentrating production to achieve scale economies. It finds that overseas production by multinationals increases relative to exports the higher are transport costs and trade barriers and the lower are investment barriers and scale economies at the plant level relative to the corporate level. However, it is not possible to reject a model with only country and industry effects. The evidence also suggests that multinational activity is more likely the more similar are the home and foreign markets--contrary to conventional wisdom.
The American Economic Review is a general-interest economics journal. Established in 1911, the AER is among the nation's oldest and most respected scholarly journals in the economics profession and is celebrating over 100 years of publishing. The journal publishes 11 issues containing articles on a broad range of topics.
Once composed primarily of college and university professors in economics, the American Economic Association (AEA) now attracts 20,000+ members from academe, business, government, and consulting groups within diverse disciplines from multi-cultural backgrounds. All are professionals or graduate-level students dedicated to economics research and teaching.
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The American Economic Review
© 1997 American Economic Association