Working Paper: NBER ID: w0511
Authors: J. Weinblatt; Robert E. Lipsey
Abstract: This paper is a theoretical analysis of the factors influencing production location decisions by a multinational corporation. It starts with a simple model of optimization for a firm facing the choice between exporting and producing abroad a single differentiated final product and then develops the model to take account of production of intermediate as well as final products, the existence of scale economies, and finally, the effects of transport cost and of factors affecting the cost of production. The share of foreign output is shown to be related to the level of transport cost, to the size of host-country markets, to host-country wage levels relative to those of the home country, in combination with labor intensities of production. All of these relationships in turn are shown to interact in various ways with economies of scale in affecting the choice of production locations.
Keywords: multinational corporations; production location; exporting; economies of scale; transport costs
JEL Codes: F23; D92
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher transport costs (L91) | decreased foreign production (F69) |
| lower host country wages (F16) | increased foreign production (F69) |
| higher home country wages (J39) | decreased foreign production (F69) |
| size of host country markets (F61) | increased foreign output (F69) |
| transport costs (L91) | decreased foreign output (F69) |
| economies of scale + transport costs (F12) | influence on production decisions (D20) |