Handbook of International Trade and Transportation
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Handbook of International Trade and Transportation

Edited by Bruce A. Blonigen and Wesley W. Wilson

International trade has grown rapidly over the past half century, accommodated by the transportation industry through concomitant growth and technological change. But while the connection between transport and trade flows is clear, the academic literature often looks at these two issues separately. This Handbook is unique in pulling together the key insights of each field while highlighting what we know about their intersection and ideas for future research in this relatively unexamined but growing area of study.
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Chapter 12: Transportation cost and the geography of foreign investment

Laura Alfaro and Maggie Xiaoyang Chen

Abstract

Falling transportation costs and rapid technological progress have precipitated an explosion of cross-border flows in goods, services, investments, and ideas led by multinational firms. This chapter reviews existing theories and evidence, addressing questions including: How is FDI distributed across space? Why does the law of gravity apply? How do the costs of transporting goods, tasks, and technologies influence firms’ decisions to separate tasks geographically and locate relative to one another? The authors discuss a variety of theoretical mechanisms through which transport cost and other geographic friction influence FDI and present the key empirical studies and findings.

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