The proximity-concentration tradeoff under uncertainty

Natalia Ramondo; Veronica Rappoport; Kim J. Ruhl

doi:10.1093/restud/rdt018

The proximity-concentration tradeoff under uncertainty

Natalia Ramondo
, Veronica Rappoport
, Kim J. Ruhl

Economics

Research output: Contribution to journal › Article › peer-review

36 Scopus citations

Abstract

In this article, we analyse the firm's choice between serving a foreign market through exports or through foreign affiliate sales in an environment characterized by country-specific shocks to the cost of production. Our model predicts that country pairs with less-correlated output fluctuations trade more, relative to affiliate sales, whereas countries with more-volatile fluctuations are served relatively more by exporters than by foreign affiliates selling abroad. Using detailed data on trade and affiliate sales, we find empirical support for our model's predictions.

Original language	English (US)
Article number	rdt018
Pages (from-to)	1582-1621
Number of pages	40
Journal	Review of Economic Studies
Volume	80
Issue number	4
DOIs	https://doi.org/10.1093/restud/rdt018
State	Published - Oct 2013

All Science Journal Classification (ASJC) codes

Economics and Econometrics

Access to Document

10.1093/restud/rdt018

Cite this

@article{d82a4bac0f30476a99936c857227e176,

title = "The proximity-concentration tradeoff under uncertainty",

abstract = "In this article, we analyse the firm's choice between serving a foreign market through exports or through foreign affiliate sales in an environment characterized by country-specific shocks to the cost of production. Our model predicts that country pairs with less-correlated output fluctuations trade more, relative to affiliate sales, whereas countries with more-volatile fluctuations are served relatively more by exporters than by foreign affiliates selling abroad. Using detailed data on trade and affiliate sales, we find empirical support for our model's predictions.",

author = "Natalia Ramondo and Veronica Rappoport and Ruhl, \{Kim J.\}",

note = "Funding Information: Acknowledgments. Wewouldliketothanktheeditors,twoanonymousreferees,YonaRubinstein,andparticipantsat various conferences and seminars for helpful comments. We would also like to thank Raymond Mataloni, Stephen Yeaple, and William Zeile for their help with the multinational affiliate data. Ramondo thanks the Peter B. Kenen fellowship from the International Economics Section, Princeton University, for support. Ruhl thanks the National Science Foundation for support under grant [SES-0536970]. The statistical analysis of firm-level data on U.S. multinational companies was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce, under arrangements that maintain legal confidentiality requirements. The views expressed are those of the authors and do not reflect official positions of the U.S. Department of Commerce.",

year = "2013",

month = oct,

doi = "10.1093/restud/rdt018",

language = "English (US)",

volume = "80",

pages = "1582--1621",

journal = "Review of Economic Studies",

issn = "0034-6527",

publisher = "Oxford University Press",

number = "4",

}

TY - JOUR

T1 - The proximity-concentration tradeoff under uncertainty

AU - Ramondo, Natalia

AU - Rappoport, Veronica

AU - Ruhl, Kim J.

N1 - Funding Information: Acknowledgments. Wewouldliketothanktheeditors,twoanonymousreferees,YonaRubinstein,andparticipantsat various conferences and seminars for helpful comments. We would also like to thank Raymond Mataloni, Stephen Yeaple, and William Zeile for their help with the multinational affiliate data. Ramondo thanks the Peter B. Kenen fellowship from the International Economics Section, Princeton University, for support. Ruhl thanks the National Science Foundation for support under grant [SES-0536970]. The statistical analysis of firm-level data on U.S. multinational companies was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce, under arrangements that maintain legal confidentiality requirements. The views expressed are those of the authors and do not reflect official positions of the U.S. Department of Commerce.

PY - 2013/10

Y1 - 2013/10

N2 - In this article, we analyse the firm's choice between serving a foreign market through exports or through foreign affiliate sales in an environment characterized by country-specific shocks to the cost of production. Our model predicts that country pairs with less-correlated output fluctuations trade more, relative to affiliate sales, whereas countries with more-volatile fluctuations are served relatively more by exporters than by foreign affiliates selling abroad. Using detailed data on trade and affiliate sales, we find empirical support for our model's predictions.

AB - In this article, we analyse the firm's choice between serving a foreign market through exports or through foreign affiliate sales in an environment characterized by country-specific shocks to the cost of production. Our model predicts that country pairs with less-correlated output fluctuations trade more, relative to affiliate sales, whereas countries with more-volatile fluctuations are served relatively more by exporters than by foreign affiliates selling abroad. Using detailed data on trade and affiliate sales, we find empirical support for our model's predictions.

UR - https://www.scopus.com/pages/publications/84886301676

UR - https://www.scopus.com/pages/publications/84886301676#tab=citedBy

U2 - 10.1093/restud/rdt018

DO - 10.1093/restud/rdt018

M3 - Article

AN - SCOPUS:84886301676

SN - 0034-6527

VL - 80

SP - 1582

EP - 1621

JO - Review of Economic Studies

JF - Review of Economic Studies

IS - 4

M1 - rdt018

ER -

The proximity-concentration tradeoff under uncertainty

Abstract

All Science Journal Classification (ASJC) codes

Access to Document

Other files and links

Fingerprint

Cite this