The proximity-concentration tradeoff under uncertainty

Natalia Ramondo, Veronica Rappoport, Kim J. Ruhl

Research output: Contribution to journalArticle

20 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 languageEnglish (US)
Article numberrdt018
Pages (from-to)1582-1621
Number of pages40
JournalReview of Economic Studies
Volume80
Issue number4
DOIs
StatePublished - Oct 1 2013

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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    Ramondo, N., Rappoport, V., & Ruhl, K. J. (2013). The proximity-concentration tradeoff under uncertainty. Review of Economic Studies, 80(4), 1582-1621. [rdt018]. https://doi.org/10.1093/restud/rdt018