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Exports vs. foreign direct investment: evidence from cross-country industry data

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  • Pietrovito, Filomena

    ()

  • Pozzolo, Alberto Franco

    ()

  • Salvatici, Luca

    ()

Abstract

The recent process of globalization has been characterized by a rapid increase of foreign direct investments (FDIs), outpacing the simultaneous expansion of arms-length trade (exporting). Trade theory traces back different patterns of internationalization to differences in productivity levels between firms. As in Helpman et al. (2004), we argue that differences in productivity are affected by heterogeneity in firm size. However, we explicitly consider the number of large firms in a sector rather than the size dispersion. Moreover, previous literature performs single country analysis, whereas we extend our analysis to several developed as well as developing countries. By using comprehensive cross-section data on bilateral exports and FDIs (proxied by mergers and acquisitions) over the period 1994-2004, we explain differences across 57 manufacturing sectors in the relative incidence of trade and FDIs. Controlling for other factors affecting the patterns of internationalization and performing several sample splits and robustness tests, our results confirm that sectors with a higher number of large firms are associated with stronger incidence of FDIs relative to trade., Il recente processo di globalizzazione è stato caratterizzato dal'incremento degli investimenti diretti esteri (IDE) che ha superato di gran lunga la rapida e simultanea espansione delle esportazioni. La teoria sul commercio internazionale spiega i patterns di internazionalizzazione attraverso le differenze nei livelli di produttivita' tra le imprese. Compatibilmente con i risultati di Helpman et al. (2004), questo lavoro argomenta che le differenze di produttivita' tra le imprese sono determinate dall'eterogeneia' tra le imprese in termini di dimensione. Tuttavia, questo lavoro considera esplicitamente il numero di imprese di grandi dimensioni presenti in ciascun settore, anziché la dispersione della dimensione. Inoltre, la letteratura esistente compie analisi specifiche per singoli paesi, mentre il nostro lavoro estende l'analisi a diversi paesi, sia sviluppati che in via di sviluppo. Utilizzando un dataset cross-section sulle esportazioni e gli IDE (misurati attraverso il valore delle fusioni e acquisizioni) bilaterali, per il periodo 1994-2004, il lavoro spiega le differenze nell'incidenza del commercio sugli IDE, tra 57 settori manifatturieri. Controllando per diversi fattori che incidono sui patterns di internazionalizzazione e riportando i risultati di diversi test di robustezza, il lavoro conferma che i settori caratterizzati da una maggiore presenza di imprese di grandi dimensioni presentano una più elevata incidenza degli IDE rispetto alle esportazioni.

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Bibliographic Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp12064.

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Date of creation: 13 Feb 2012
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Handle: RePEc:mol:ecsdps:esdp12064

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Keywords: exports; foreign direct investment; mergers and acquisitions; large firms;

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  1. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
  2. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  3. Ben S. Bernanke & Kenneth Rogoff, 2002. "NBER Macroeconomics Annual 2001, Volume 16," NBER Books, National Bureau of Economic Research, Inc, number bern02-1, June.
  4. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
  5. Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, . "The Regulation of Entry," Working Paper 19462, Harvard University OpenScholar.
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  7. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
  8. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series 168, Research Institute for Economics & Business Administration, Kobe University.
  9. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 441-487, 05.
  10. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  11. Nils Herger & Christos Kotsogiannis & Steve McCorriston, 2008. "Cross-border acquisitions in the global food sector," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 35(4), pages 563-587, December.
  12. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
  13. Anders Isaksson, 2009. "The UNIDO World Productivity Database: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 18, pages 38-50, Spring.
  14. Drogue, Sophie & Bartova, Lubica, 2007. "A Critical Survey of Databases on Tariffs and Trade Available for the Analysis of EU Agricultural Agreements," Working Papers 7287, TRADEAG - Agricultural Trade Agreements.
  15. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
  16. Arjen H L Slangen & Sjoerd Beugelsdijk, 2010. "The impact of institutional hazards on foreign multinational activity: A contingency perspective," Journal of International Business Studies, Palgrave Macmillan, vol. 41(6), pages 980-995, August.
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