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Export and direct investment as a signal in global markets

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Author Info
Arijit Mukherjee () (Department of Economics, Keele University, Keele,)
Udo Broll (University of Saarland, Germany)

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Abstract

This paper examines the production strategies of an international firm. We show that foreign direct investment acts as a signal to overcome an asymmetric information problem in the host-country. We find that a host-country will prefer a situation where a technologically superior (inferior) firm does direct investment (export) compared to the situations where all or neither types of foreign firms are investing abroad. Since, the technologically superior (inferior) firm does direct investment (export) for moderate cost of direct investment, this finding suggests higher host-country welfare for moderate cost of direct investment compared to very small or very large costs of direct investment.

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Publisher Info
Paper provided by Department of Economics, Keele University in its series Keele Department of Economics Discussion Papers (1995-2001) with number 2001/09.

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Length: 21 pages
Date of creation: Nov 2001
Date of revision:
Publication status: Published in
Handle: RePEc:kee:keeldp:2001/09

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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
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Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Department of Economics, Keele University, Keele, Staffordshire ST5 5BG - United Kingdom
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Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm

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Related research
Keywords: Asymmetric information; Export; Foreign direct investment;

Other versions of this item:

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mukherjee, A., 1999. "Subsidy and entry: Role of licensing," ECIS Working Papers 99.12, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
  2. Marjit, Sugata & Mukherjee, Arijit, 1998. "Technology Collaboration and Foreign Equity Participation: A Theoretical Analysis," Review of International Economics, Blackwell Publishing, vol. 6(1), pages 142-50, February.
  3. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Blonigen, Bruce A., 2001. "In search of substitution between foreign production and exports," Journal of International Economics, Elsevier, vol. 53(1), pages 81-104, February. [Downloadable!] (restricted)
  5. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May. [Downloadable!] (restricted)
  6. Dehejia, Vivek H. & Weichenrieder, Alfons J., 2001. "Tariff jumping foreign investment and capital taxation," Journal of International Economics, Elsevier, vol. 53(1), pages 223-230, February. [Downloadable!] (restricted)
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  7. Sugata Marjit & Arijit Mukherjee, 2001. "Technology Transfer under Asymmetric Information: The Role of Equity Participation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(2), pages 282-, June.
  8. Smith, Alasdair, 1987. "Strategic investment, multinational corporations and trade policy," European Economic Review, Elsevier, vol. 31(1-2), pages 89-96. [Downloadable!] (restricted)
  9. Banerjee, Abhijit V, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1289-1332, November.
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