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Export-Supporting FDI

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  • Krautheim, Sebastian

Abstract

Wholesale and retail trade affiliates owned by parent firms in manufacturing account for a considerable fraction of overall affiliate sales. Although quantitatively important, this Export-Supporting FDI (ESFDI) activity has received little attention in the literature. This paper includes ESFDI into a model of trade and horizontal FDI with heterogeneous firms. ESFDI is characterized by export-supporting distribution and service activities in the foreign market while production remains in the home country. This introduces some complementarity between trade and FDI. In the model falling trade costs lead to an increase in both overall trade and overall FDI activity. This provides a possible explanation for the simultaneous rise in trade and FDI in the data. An empirical analysis using German firm level FDI data confirms the quantitative importance of ESFDI. The data also support crucial implications of the theoretical model. Parents choosing ESFDI are smaller than firms choosing to produce in the foreign market. And the importance of ESFDI relative to horizontal FDI is strongest when variable trade costs are low. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2009,20.

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Date of creation: 2009
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Handle: RePEc:zbw:bubdp1:200920

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Keywords: Exports; horizontal FDI; multinational companies; wholesale trade;

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References

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  1. 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.
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  7. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2004. "Exports, international investment, and plant performance: evidence from a non-parametric test," Economics Letters, Elsevier, vol. 83(3), pages 317-324, June.
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  18. Pamela Bombarda, 2007. "The Spatial Pattern of FDI: Some Testable Hypotheses," IHEID Working Papers 24-2007, Economics Section, The Graduate Institute of International Studies.
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Citations

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Cited by:
  1. Felbermayr, Gabriel J. & Jung, Benjamin, 2011. "Trade intermediation and the organization of exporters," Tübinger Diskussionsbeiträge 331, University of Tübingen, School of Business and Economics.
  2. Luigi Bonatti & Andrea Fracasso, 2012. "A Germans’ dilemma: save the euro or preserve their socio-economic model," Department of Economics Working Papers 1207, Department of Economics, University of Trento, Italia.
  3. repec:hal:cesptp:hal-00608510 is not listed on IDEAS
  4. Spies, Julia, 2010. "Network and border effects: Where do foreign multinationals locate in Germany?," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 20-32, January.
  5. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
  6. Felbermayr, Gabriel J. & Jung, Benjamin, 2008. "Trade intermediaries, incomplete contracts, and the choice of export modes," Tübinger Diskussionsbeiträge 317, University of Tübingen, School of Business and Economics.
  7. Jörn Kleinert & Farid Toubal, 2013. "Production versus distribution-oriented FDI," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 423-442, September.

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