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Export versus FDI in services

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Author Info

  • Bhattacharya, Rudrani

    ()
    (National Institute of Public Finance and Policy)

  • Patnaik, Ila

    ()
    (National Institute of Public Finance and Policy)

  • Shah, Ajay

    ()
    (National Institute of Public Finance and Policy)

Abstract

In the literature on exports and investment, most productive firms are seen to invest abroad. In the Helpman et al. (2004) model, costs of transportation play a critical role in the decision about whether to serve foreign customers by exporting, or by producing abroad. We consider the case of tradable services, where the marginal cost of transport is near zero. We argue that in the purchase of services, buyers face uncertainty about product quality, especially when production is located far away. Firm optimisation then leads less productive firms to self-select themselves for FDI. We test this prediction with data from the Indian software industry, and find support for it.

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Bibliographic Info

Paper provided by National Institute of Public Finance and Policy in its series Working Papers with number 11/77.

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Length: 23
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:npf:wpaper:11/77

Note: Working Paper 77, 2011
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Web page: http://www.nipfp.org.in

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  1. Dilek Demirbas & Ila Patnaik & Ajay Shah, 2010. "Graduating to Globalisation : A Study of Southern Multinationals," Finance Working Papers 21854, East Asian Bureau of Economic Research.
  2. Fukunari Kimura & Kozo Kiyota, 2006. "Exports, FDI, and Productivity: Dynamic Evidence from Japanese Firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(4), pages 695-719, December.
  3. Sourafel Girma & David Greenaway & Richard Kneller, 2004. "Does Exporting Increase Productivity? A Microeconometric Analysis of Matched Firms," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 855-866, November.
  4. 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.
  5. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  6. Asish Arora & Alfonso Gambardella, 2004. "The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries," NBER Working Papers 10538, National Bureau of Economic Research, Inc.
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Cited by:
  1. Kelle, Markus & Kleinert, Jörn & Raff, Horst & Toubal, Farid, 2012. "Cross-Border and Foreign-Affiliate Sales of Services: Evidence From German Micro-Data," CEPR Discussion Papers 9016, C.E.P.R. Discussion Papers.
  2. Neil Foster-McGregor & Anders Isaksson & Florian Kaulich, 2013. "Outward Foreign Direct Investment, Exporting and Firm-Level Performance in Sub-Saharan Africa," wiiw Working Papers 97, The Vienna Institute for International Economic Studies, wiiw.
  3. Neil Foster-McGregor & Anders Isaksson & Florian Kaulich, 2013. "Importing, Exporting and the Productivity of Services Firms in Sub-Saharan Africa," wiiw Working Papers 98, The Vienna Institute for International Economic Studies, wiiw.
  4. Paulo Júlio & Ricardo Pinheiro-Alves & José Tavares, 2011. "FDI and institutional reform in Portugal," GEE Papers 0040, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Sep 2011.
  5. TANAKA Kiyoyasu, 2013. "Firm Heterogeneity and FDI in Distribution Services," Discussion papers 13027, Research Institute of Economy, Trade and Industry (RIETI).
  6. Joachim Wagner, 2011. "Exports, Foreign Direct Investments and Productivity: Are Services Firms different?," Working Paper Series in Economics 215, University of Lüneburg, Institute of Economics.
  7. Stefano Federico & Enrico Tosti, 2012. "Exporters and importers of services: firm-level evidence on Italy," Temi di discussione (Economic working papers) 877, Bank of Italy, Economic Research and International Relations Area.
  8. Joachim Wagner, 2012. "International trade and firm performance: a survey of empirical studies since 2006," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(2), pages 235-267, June.

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