Transportation Cost and the Geography of Foreign Investment

Laura  Alfaro; Maggie  Chen

Chapter | Handbook of International Trade and Transportation | 2018

Transportation Cost and the Geography of Foreign Investment

by Laura Alfaro and Maggie Chen

Abstract

Falling transportation costs and rapid technological progress in recent decades have precipitated an explosion of cross-border flows in goods, services, investments, and ideas led by multinational firms. Extensive research has sought to understand the geographic patterns of foreign direct investment (FDI). This chapter reviews existing theories and evidence specifically 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? We discuss a variety of theoretical mechanisms through which transport cost and other geographic friction influence FDI and present the key empirical studies and findings.

Keywords: Foreign Direct Investment; Cost; Transportation; Geographic Scope; Geographic Location;

Format: Print

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Citation:

Alfaro, Laura, and Maggie Chen. "Transportation Cost and the Geography of Foreign Investment." In Handbook of International Trade and Transportation, edited by Bruce Blonigen and Wesley W. Wilson. Edward Elgar Publishing, 2018.

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Transportation Cost and the Geography of Foreign Investment

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