Publication

This paper introduces service innovation in the proximity-concentration trade-off model of trade and FDI. The idea is that innovation will have two main effects on service firms’ choice between exports and FDI. First, innovative firms will on average have higher productivity levels than non-innovative enterprises. Secondly, innovators will have to pay a higher relational distance cost for undertaking export activities, and they will therefore prefer to avoid these costs by choosing a FDI strategy instead.