This paper presents a simple model to analyse the impact of localised externalities on the internationalisation decision of firms. We argue that, once localised spillovers are taken into account, the standard predictions on the nature and direction of foreign direct investment (FDI) flows may bereversed. In the context of this model, the firm engaging in FDI does not necessarily enjoy a superior capability and the presence of spillovers ma y induce a firm to invest abroad even in the absence of exporting costs inorder to capture spatially bounded externalities. Conversely, firm's may refrain from investing abroad for fear of dissipation of their firm specific assets.
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Length: 31 pages Date of creation: Oct 1996 Date of revision: Publication status: Published in Journal of Economics & Management Strategy, vol. 8 (2), Summer 1999, pp. 251-270 Handle: RePEc:lau:crdeep:9626
Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets O3 - Economic Development, Technological Change, and Growth - - Technological Change
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