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FDI versus Exports: Multiple Host Countries and Empirical Evidence

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Author Info

  • Oberhofer, Harald

    ()
    (University of Salzburg)

  • Pfaffermayr, Michael

    ()
    (Department of Economics and Statistics, University of Innsbruck)

Abstract

There are two main options for companies to serve foreign markets: exports and foreign direct investment (FDI). Based on the Helpman, Melitz and Yeaple (2004) model for multiple host countries this paper derives a clear theoretical prediction for the decision between both strategies. A bivariate probit model is estimated using a large data set of European companies to analyze the probability of using one or the other strategy. The empirical evidence indicates that more productive firms less (more) probably use the export (FDI) strategy to serve foreign markets. Moreover, a considerable number of companies use a combination of both strategies to serve foreign markets, which is in line with a multiple country model.

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Bibliographic Info

Paper provided by University of Salzburg in its series Working Papers in Economics and Finance with number 2011-3.

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Length: 19 pages
Date of creation: 17 Feb 2011
Date of revision:
Handle: RePEc:ris:sbgwpe:2011_003

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Related research

Keywords: Heterogeneous Firms; Exports; Foreign Direct Investment; Multiple Host Countries; Bivariate Probit Estimation;

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Cited by:
  1. Filomena Pietrovito & Alberto Franco Pozzolo & Luca Salvatici, 2013. "Internationalization choices: an ordered probit analysis at industry-level," Development Working Papers 349, Centro Studi Luca d\'Agliano, University of Milano, revised 24 Apr 2013.
  2. Wagner, Joachim, 2011. "International Trade and Firm Performance: A Survey of Empirical Studies since 2006," IZA Discussion Papers 5916, Institute for the Study of Labor (IZA).
  3. Pinuccia Calia & Maria Ferrante, 2013. "How do firms combine different internationalisation modes? A multivariate probit approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(4), pages 663-696, December.

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