Foreign Direct Investment Strategies and Firms' Capabilities
AbstractThis paper presents a simple model to analyze the effect of geographically localized spillovers on the internationalization decision of firms. It is shown that, once spatially bounded externalities are taken into account, the standard predictions on the nature and direction of foreign direct investment (FDI) flows may be reversed. We highlight three effects. First, an FDI-en-hancing effect: the presence of spillovers increases the profitability of the FDI strategy when the competitive gap between firms is narrow. Second, a dissipation effect: firms may refrain from investing abroad for fear of diffusion of their firm-specific assets. Third, a sourcing effect: the presence of spillovers may induce a firm to invest abroad, even in the absence of exporting costs. Copyright (c) 1999 Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 8 (1999)
Issue (Month): 2 (06)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- Georges SIOTIS, 1996. "Foreign Direct Investment Strategies and Firms' Capabilities," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9626, Université de Lausanne, Faculté des HEC, DEEP.
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
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