Multinationals without advantages

We question the widespread argument that firms embarking on foreign direct investments must possess some specific advantages to offset the penalties o f operating across national and cultural boundaries. A simple model shows t hat firms might invest abroad to capture local advantages through geographi cal proximity of plant location, rather than to exploit existing ones. Beca use of spatially bounded spillovers, laggard firms might use foreign invest ments to acquire location-specific knowledge, whereas leading firms might p refer costly exports to avoid the dissipation of their advantages.