A linder hypothesis for foreign direct investment
By: Pablo D. Fajgelbaum, Gene M. Grossman, Elhanan Helpman
Contributors: Grossman, Gene M.; Helpman, Elhanan; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17550; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17550.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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"--National Bureau of Economic Research web site.
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