NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Linder Hypothesis for Foreign Direct Investment

Pablo D. Fajgelbaum, Gene M. Grossman, Elhanan Helpman

NBER Working Paper No. 17550
Issued in October 2011, Revised in August 2014
NBER Program(s):   ITI

We study patterns of FDI in a multi-country world economy. 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 horizontal FDI, which is consistent with the patterns we find using establishment-level data on multinational activity.

download in pdf format
   (481 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17550

Published: P. Fajgelbaum & G. M. Grossman & E. Helpman, 2015. "A Linder Hypothesis for Foreign Direct Investment," The Review of Economic Studies, vol 82(1), pages 83-121. citation courtesy of

Users who downloaded this paper also downloaded* these:
Fajgelbaum, Grossman, and Helpman w15329 Income Distribution, Product Quality, and International Trade
Keller w15442 International Trade, Foreign Direct Investment, and Technology Spillovers
Helpman, Itskhoki, Muendler, and Redding w17991 Trade and Inequality: From Theory to Estimation
Helpman, Itskhoki, and Redding w16662 Trade and Labor Market Outcomes
Blonigen and Piger w16704 Determinants of Foreign Direct Investment
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us