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Uncertain productivity growth and the choice between FDI and export

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  • Yalcin, Erdal

    ()
    (ifo Institute for Economic Research)

  • Sala, Davide

    ()
    (Department of Business and Economics)

Abstract

With aggregate sales by foreign affiliates exceeding world exports, determinants of FDI patterns have received great attention, while the timing of their surge has been understudied. Recent evidence indicates that transportation costs of goods have fallen too little to explain these figures based on the proximity-concentration trade-off argument alone. Contextually, other changes have occurred: in particular, the uncertainty that firms bear has increased. Enriching the classical choice problem of a multinational firm with insights from the investment literature, we show that increased uncertainty along with the sizable fixed costs characterizing engagements on international markets can explain specific FDI patterns.

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Bibliographic Info

Paper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 19/2012.

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Length: 37 pages
Date of creation: 07 Sep 2012
Date of revision:
Handle: RePEc:hhs:sdueko:2012_019

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Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Phone: 65 50 32 33
Fax: 65 50 32 37
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Keywords: Proximity-concentration hypothethis; stochastic processes; real option;

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Cited by:
  1. Naudé, Wim & Gries, Thomas & Bilkic, Natasa, 2013. "Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach," IZA Discussion Papers 7346, Institute for the Study of Labor (IZA).

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