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Export-Supporting FDI

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  • Sebastian Krautheim

Abstract

Wholesale trade affiliates account for a considerable fraction of the sales of Multinational Companies (MNCs). However, this and similar types of FDI, aiming at facilitating export activities, have received little attention in the literature. In this paper export-supporting FDI (ESFDI) which is characterized by destination-market specific export-supporting distribution and service activities in the foreign market, keeping production in the home country, is introduced as a theoretical concept. It is included into a model of international trade and FDI with heterogeneous firms. In equilibrium lower trade costs increase ESFDI. This implies that both FDI activitiesand trade volumes increase at the same time. The model thus provides a rationale for the positive correlation between trade and FDI activity observed in the 1990s and the prevalence of intra Euro-area investments in the FDI activities of Euro-area MNCs, which are both at odds with the 'proximity-concentration trade-off' governing standard models of horizontal FDI.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2007/24.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/24

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Keywords: exports; horizontal FDI; multinational companies; wholesale trade;

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  1. Keith Head & John Ries, 2004. "Exporting and FDI as Alternative Strategies," Oxford Review of Economic Policy, Oxford University Press, vol. 20(3), pages 409-423, Autumn.
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Citations

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Cited by:
  1. Felbermayr, Gabriel & Jung, Benjamin, 2011. "Trade intermediation and the organization of exporters," Munich Reprints in Economics 20574, University of Munich, Department of Economics.
  2. Jörn Kleinert & Farid Toubal, 2013. "Production versus distribution-oriented FDI," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 423-442, September.
  3. Julia Spies, 2009. "Network and Border Effects: Where Do Foreign Multinationals Locate in Germany?," IAW Discussion Papers 47, Institut für Angewandte Wirtschaftsforschung (IAW).
  4. Luigi Bonatti & Andrea Fracasso, 2012. "A Germans’ dilemma: save the euro or preserve their socio-economic model," Department of Economics Working Papers 1207, Department of Economics, University of Trento, Italia.
  5. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
  6. Felbermayr, Gabriel J. & Jung, Benjamin, 2008. "Trade intermediaries, incomplete contracts, and the choice of export modes," Tübinger Diskussionsbeiträge 317, University of Tübingen, School of Business and Economics.

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