Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the well-known “proximity-concentration” hypothesis does not support this view. We provide a simple explanation for this phenomenon. We show that a lower trade cost on the intermediate goods (with...

Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the well-known "proximity-concentration" hypothesis does not support this view. We provide a simple explanation for this phenomenon. We show that a lower trade cost on the intermediate goods (with or...

We examine whether the market under free entry with a certain entry cost can recover the revenue loss following tariff reduction on an intermediate input. We show that there are four possible ranges of entry cost, from high to low, with four different revenue implications following a reduction...