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Transportation Costs and U.S. Manufacturing FDI
Review of International Economics
  • Joseph P. Daniels, Marquette University
  • Marc von der Ruhr, St. Norbert College
Document Type
Format of Original
11 p.
Publication Date

In empirical models of foreign direct investment (FDI), distance is most often used to proxy for transportation costs and other pure-trade costs. Given that distance is time invariant but transportation costs are not, this approach is less than satisfactory when actual transportation costs rise and fall over time.The contribution of this work is to explicitly control for transportation costs and thereby better understand their impact on FDI. We explore the impact of shipping costs on total US FDI stocks abroad, manufacturing stocks and service stocks using measures of sea-shipping and air-shipping costs in a Hausman–Taylor model that controls for endogeneity and allows for time-invariant variables such as distance. We find that transportation costs have a positive and statistically significant relationship with US total and manufacturing FDI, suggesting a substitute relationship between FDI and trade flows consistent with horizontal MNE activity. As one would expect, these costs are insignificant for service stocks.


Accepted version. Review of International Economics, Vol. 22, No. 2 (May 2014): 299-309. DOI. © 2011 Wiley. Used with permission.

Citation Information
Joseph P. Daniels and Marc von der Ruhr. "Transportation Costs and U.S. Manufacturing FDI" Review of International Economics (2014) ISSN: 0965-7576
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