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Export, foreign direct investment, and joint ventures: Learning the rival’s costs through propinquity

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Author Info
Anthony Creane
Kaz Miyagiwa ()

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Abstract

We examine the role of cost uncertainty in a firm’s choice between exporting and foreign investment in oligopolistic industry. We consider both foreign direct investment and an international joint venture, and allow country-specific and firm-specific cost uncertainty. Unlike exporting, either form of foreign investment exposes home and foreign firms to common country-specific cost shocks, implying a better knowledge of each other’s country-specific shocks. Further, a joint venture allows the firms to learn each other’s firm-specific cost. A firm’s plant location decision depends on the interaction of these two effects, which depend on the type of competition and the substitutability of the firm’s products.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0710.

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Date of creation: Jul 2007
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Handle: RePEc:emo:wp2003:0710

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  1. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  2. Viaene, Jean-Marie & Zilcha, Itzhak, 1998. "The Behavior of Competitive Exporting Firms under Multiple Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 591-609, August.
  3. Anthony Creane & Kaz Miyagiwa, 2005. "Information and disclosure in strategic trade policy," Emory Economics 0530, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  4. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April. [Downloadable!] (restricted)
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  5. Sung, Hongmo & Lapan, Harvey E, 2000. "Strategic Foreign Direct Investment and Exchange-Rate Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(2), pages 411-23, May.
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  6. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November. [Downloadable!] (restricted)
  7. Anthony Creane & Kaz Miyagiwa, 2007. "Foreign direct investment and cost uncertainty: Correlation and learning effects," Emory Economics 0711, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  8. Morasch, Karl, 2000. "Strategic alliances: a substitute for strategic trade policy?," Journal of International Economics, Elsevier, vol. 52(1), pages 37-67, October. [Downloadable!] (restricted)
  9. Eaton, Jonathan & Grossman, Gene M, 1986. "Optimal Trade and Industrial Policy under Oligopoly," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 383-406, May. [Downloadable!] (restricted)
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