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FDI versus Exports: Multiple Host Countries and Empirical Evidence

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Author Info

  • Harald Oberhofer
  • Michael Pfaffermayr

Abstract

There are two main options for companies to serve foreign markets: exports and foreign direct investment (FDI). Based on the Helpman, Melitz and Yeaple (2004) model for multiple host countries this paper derives a clear theoretical prediction for the decision between both strategies. A bivariate probit model is estimated using a large data set of European companies to analyze the probability of using one or the other strategy. The empirical evidence indicates that more productive firms less (more) probably use the export (FDI) strategy to serve foreign markets. Moreover, a considerable number of companies use a combination of both strategies to serve foreign markets, which is in line with a multiple country model.

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File URL: http://hdl.handle.net/10.1111/j.1467-9701.2011.01403.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 35 (2012)
Issue (Month): 3 (03)
Pages: 316-330

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Handle: RePEc:bla:worlde:v:35:y:2012:i:3:p:316-330

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Cited by:
  1. Pietrovito, Filomena & Pozzolo, Alberto Franco & Salvatici, Luca, 2013. "Internationalization choices: an ordered probit analysis at industry-level," Economics & Statistics Discussion Papers esdp13071, University of Molise, Dept. EGSeI.
  2. Joachim Wagner, 2011. "International Trade and Firm Performance: A Survey of Empirical Studies since 2006," Working Paper Series in Economics 210, University of L√ľneburg, Institute of Economics.
  3. Pinuccia Calia & Maria Ferrante, 2013. "How do firms combine different internationalisation modes? A multivariate probit approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(4), pages 663-696, December.

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