The trade-off between foreign direct investments and exports: The role of multiple dimensions of distance

To serve foreign markets, firms can either export or set up a local subsidiary through horizontal Foreign Direct Investment (FDI). The conventional proximity-concentration theory suggests that FDI substitutes for trade if distance between countries is large, while exports become more important if scale economies in production are large. This paper investigates empirically the effect of different dimensions of distance on the choice between exports and FDI. We find that different dimensions of distance affect exports and FDI differently. There is clear evidence of a proximity-concentration trade-off in geographical terms: the share of FDI sales in total foreign sales (exports and FDI sales) increases with geographical distance. The positive relation between import tariffs and FDI intensity provides further evidence for a trade-off resulting from trade costs. On the other hand, the share of FDI decreases with language differences and cultural and institutional barriers. The latter dimensions of distance thus affect FDI more strongly than exports

Product Heterogeneity, Intangible Barriers and Distance Decay: The Effect of Multiple Dimensions of Distance on Trade across Different Product Categories

We empirically examine the heterogeneity in the effects of multiple dimensions of distance on trade across detailed product groups. Using finite mixture modeling on bilateral trade data at the 3-digit SITC level, we endogenously group product categories into an, a priori unknown, number of segments based on estimated coefficients of multiple dimensions of distance in the gravity equation. We find that institutional distance, whether countries belong to the same trade block and especially geographical distance are crucial and distinct factors to classify commodities in homogeneous groups

Internationale handel en doorvoer:een nieuwe statistiek

From way back, the Netherlands is a trading nation. International trade and transport are important sources of income. However, the international transport flows also lead to costs for society. Therefore, careful assessments are needed when investing in infrastructure, transport and logistics. To make such assessments, the availability of quantitative information on international trade and transport flows is essential. The information on international commodity flows is distributed among several statistical products by Statistics Netherlands (CBS): the statistics of international trade in goods and the six transport statistics. Even together these statistics cannot complete the picture of international commodity flows of the Netherlands. Transit is not visible in the statistics. Furthermore, a complete view of the value and weight of commodity flows broken down by content, origin, destination and transport mode is lacking. Now, a new statistics integrates the statistics of international trade and transport by using a Bayesian integration model. The model takes care that the trade and transport figures are mutually consistent and satisfy logical restrictions. This results in a better view of the international commodity flows to, from and through the Netherlands broken down by commodity type and continent of origin or destination. For the first time since 1997, a reliable estimate of transit is available again. Furthermore, the margins around the estimates are determined, which gives insight in the reliability of the figures

Determinants of Foreign Direct Investment: An empirical investigation into sources of attraction

Contains fulltext : 82567.pdf (publisher's version ) (Open Access)Radboud Universiteit Nijmegen, 07 september 2009Promotor : Jong, E. de Co-promotor : Groot, H.L.F. de192 p

The implications of re-exports for gravity equation estimation, NAFTA and Brexit

This paper illustrates the importance of taking into account re-exports. It shows that not taking into account re-exports causes estimates from the gravity model to be biased. It also considers the implications of re-exports for two current policy events. It is shown that the United States actually ran a net trade surplus in the North American Free Trade Agreement (NAFTA). Second, it is argued there may be additional costs for the UK economy from Brexit that are not addressed in earlier studies. This paper derives bilateral trade flows corrected for re-exports for a large number of countries at a detailed product level, using the World Input–Output Database (WIOD). Through a constrained non-linear optimization procedure, complete origin–destination matrices of re-exports are determined. Trade is subsequently restored to its most likely origin and destination

Estimating the knowledge-capital model for multiple parents and hosts: taking the cross-classified structure of the data into account

Contains fulltext : 74912.pdf (publisher's version ) (Open Access)Data on bilateral FDI and trade flows are clustered within parent and host countries and parent-host combinations. Failure to take into account these forms of clustering will lead to biased estimates of the coefficients due to an omitted variables problem and to an underestimation of the coefficients’ standard errors. Hence coefficients are incorrectly classified as significant. A cross-classified multilevel estimation procedure takes care of both problems. This paper estimates the knowledge-capital model of bilateral FDI for a sample of multiple parent and host countries by means of the cross-classified multilevel approach and compares the estimates with other techniques.III, 27 p

Cultural distance and international trade: a non-linear relationship

This paper investigates the effect of culture on trade using measures of cultural distance based on various dimensions of national culture from Hofstede (Culture’s Consequences: International Differences in Work-Related Values, 1980; Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations across nations, 2001). Previous papers using such measures find a positive effect of cultural distance on bilateral trade, suggesting that cultural differences lead to more trade between countries. This paper indicates that the relationship between international trade and cultural differences is in fact non-linear: international trade decreases with cultural distance, but only once cultural differences between two countries surpass a certain threshold. Benefits due to differences in comparative advantages and substitution of FDI by trade may explain the positive effect of cultural distance on trade for lower levels of cultural distance