This paper builds a multi-country, multi-sector general equilibrium model that explains the decision of heterogeneous firms to serve foreign markets either through exports or local subsidiary sales (FDI). These modes of market access involve different relative costs, some of which are sunk while...

Recent theories of economic geography suggest that firms in the same industry may be drawn to the same locations because proximity generates positive externalities or 'agglomeration effects.' Under this view, chance events and government inducements can have a lasting influence on the...