The Internationalization Process of Firms: from Exports to FDI
AbstractThis paper shows that uncertainty can lead firms to follow a gradual internationalizationprocess. We describe a model in which firms are uncertain abouttheir ability to earn profits in a foreign market and must decide whether or notto serve it, and whether to do so through exports or foreign affiliate sales. Weshow that a firm may first test the foreign market via exports, before engagingin foreign direct investment (FDI). To assess the evidence, we exploit a uniquedataset of firm-level exports and FDI in individual destination countries, coveringall Belgian companies over the 1998-2008 period. We show that a firm's FDI entryin a foreign market is almost always preceded by its export entry. More uncertainforeign market conditions lead new exporters to delay FDI entry decisions. Ouranalysis suggests that exports and FDI, although substitutes from a static perspective,may be complements over time, since the knowledge acquired throughexport experimentation can lead firms to start investing abroad.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2013/139596.
Length: 45 p.
Date of creation: 2013
Date of revision:
Publication status: Published by:
uncertainty; experimentation; exports; FDI;
Other versions of this item:
- Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2013. "The Internationalization Process of Firms: from Exports to FDI," CEPR Discussion Papers 9332, C.E.P.R. Discussion Papers.
- Paola Conconi & André Sapir & Maurizio Zanardi, 2010. "The internationalization process of firms : From exports to FDI ?," Working Paper Research 198, National Bank of Belgium.
- F10 - International Economics - - Trade - - - General
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-08 (All new papers)
- NEP-BEC-2013-02-08 (Business Economics)
- NEP-CSE-2013-02-08 (Economics of Strategic Management)
- NEP-INT-2013-02-08 (International Trade)
You can help add them by filling out this form.
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