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Title:Distance and the margins of multinational firms' activities PDF Logo
Authors:Kleinert, Jörn
Toubal, Farid
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Trade, Gravity and Distance A4-V2
Abstract:We present a model of multinational firms that predicts that aggregated affiliates' sales fall in distance. The distance effect on foreign affiliate sales is driven by the extensive margin: distance affects the number of affiliates negatively while it has an ambiguous effect on the average affiliate sales. We derive gravity equations explaining aggregate and average foreign affiliate sales and their number from the model. We discuss the revealed endogeneity bias and propose a system estimation to cure it. To assess the relative importance of the extensive and the intensive margins of foreign affiliates activities we use a comprehensive German data set. We find the extensive margin driving the negative effect of distance on multinational firms' activities.
Subjects:Gravity equation
multinational rms
distance costs
JEL:F23
F15
C52
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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