Export Versus FDI: A Task-Based Framework for Comparing Manufacturing and Services,” Working Paper

This paper shows that standard predictors of the export versus FDI decision hold for manufacturing but not for service industries. I develop an alternative model which decomposes each industry into the tasks required for production and uses these tasks to predict the location of production for that industry. Industries requiring direct communication with consumers are more likely to be produced in the destination mar-ket. Production of more nonroutine activities is more likely to occur at the multi-national’s headquarters for export, especially when the destination market has weak contract-enforcing institutions. These predictions are tested using firm-level data from the Bureau of Economic Analysis US Direct Investment Abroad Benchmark Survey of Multinationals combined with task-level data from the Department of Labor’s Oc-cupational Information Network. The task-based approach developed in this paper performs well for both manufacturing and service industries, has greater explanatory power than alternative proximity concentration or comparative advantage explana-tions, and is robust to a variety of specifications. Differences in task intensities can explain 40 percent of the difference in export to FDI ratios between the manufacturing and service sectors. ∗The statistical analysis of firm-level data on U.S. multinational companies was conducted at the Interna