The Effect of Communication Costs on Trade in Headquarter Services

31 Pages Posted: 1 Nov 2014

See all articles by Anca D. Cristea

Anca D. Cristea

University of Oregon - Department of Economics

Date Written: January 30, 2014

Abstract

Communication is a real barrier to organizing international production as it hinders knowledge transmission. This paper provides evidence to suggest that a way in which multinational firms economize on costly information transfers is by using skilled foreign workers, since local talent can substitute for knowledge inputs from the headquarters. Combining U.S. data on headquarter service exports with information on communication costs and skill endowments by country, I find that while communication costs decrease the export of headquarter services to foreign affiliates, the effect becomes weaker in the average educational attainment of foreign workers. The sensitivity of headquarter service exports to communication barriers at low levels of skill endowment has important implications for the geography of multinational production, as well as for policies aimed at improving communication infrastructure.

Keywords: headquarter services, services trade, intra-firm trade, communication costs, telecommunication, knowledge transfers

JEL Classification: F1

Suggested Citation

Cristea, Anca D., The Effect of Communication Costs on Trade in Headquarter Services (January 30, 2014). Available at SSRN: https://ssrn.com/abstract=2516854 or http://dx.doi.org/10.2139/ssrn.2516854

Anca D. Cristea (Contact Author)

University of Oregon - Department of Economics ( email )

1245 University of Oregon
Eugene, OR 97403
United States

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