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Abstract Why do firms go abroad when technology makes it possible to do business at a distance? We argue that the cost of distance differentially affects investment motivations across industries. We find support for this hypothesis in a study of U.S. inward and outward FDI. Knowledge seeking and efficiency seeking are the two most important explanations for international activity in information‐intensive industries, reinforcing the value of intangible resources in this sphere. In less information‐intensive industries, market seeking and the search for low‐cost export platforms are the dominant motivations for FDI. An important implication for the current debate on offshoring is that inward FDI flows into the United States occur in high‐ rather than low‐paying industries, and are of the knowledge‐seeking variety, while outward flows are driven by the search for efficiency and markets. Copyright © 2005 John Wiley & Sons, Ltd.
Nachum et al. (Tue,) studied this question.