This paper empirically investigates the role of transport costs, trade and investment barriers, production scale economies, and firm-specific advantages in determining the use of overseas production relative to exports. The proximity-concentration hypothesis, which posits that multinationals will choose overseas production over exporting when transport costs and trade barriers are high and plant scale economies and investment barriers are low, is robust in explaining the share of total sales accounted for by affiliate sales. The effects of trade and investment barriers on the levels of trade and affiliate sales are similar to their effects on the shares, even though the hypothesis applies only to the shares. Transport costs have a negative effect on the level of trade, but the effect on the level of affiliate sales is less robust. The probability of observing any multinational sales in a market decreases with the distance between markets. The overall complementarity between trade and affiliate sales arises in part because relative income and intellectual property intensity increase both. In contrast, affiliate sales and trade move in opposite directions with increases in advertising intensity, suggesting that advertising-intensive products require a local presence. The paper also explores the internalization hypothesis, which focuses on motivations for internalization, such as asymmetric information and control over quality or technology diffusion, and finds support for this hypothesis in certain contexts.This paper empirically investigates the role of transport costs, trade and investment barriers, production scale economies, and firm-specific advantages in determining the use of overseas production relative to exports. The proximity-concentration hypothesis, which posits that multinationals will choose overseas production over exporting when transport costs and trade barriers are high and plant scale economies and investment barriers are low, is robust in explaining the share of total sales accounted for by affiliate sales. The effects of trade and investment barriers on the levels of trade and affiliate sales are similar to their effects on the shares, even though the hypothesis applies only to the shares. Transport costs have a negative effect on the level of trade, but the effect on the level of affiliate sales is less robust. The probability of observing any multinational sales in a market decreases with the distance between markets. The overall complementarity between trade and affiliate sales arises in part because relative income and intellectual property intensity increase both. In contrast, affiliate sales and trade move in opposite directions with increases in advertising intensity, suggesting that advertising-intensive products require a local presence. The paper also explores the internalization hypothesis, which focuses on motivations for internalization, such as asymmetric information and control over quality or technology diffusion, and finds support for this hypothesis in certain contexts.