A Structural Model of Export versus Affiliates Production
AbstractWe derive and estimate an econometric model of export versus foreign production using firm-level data on foreign activities of German multinationals. Proximity-concentration theory which we derive our model from shows that firms face a trade-off between concentrating their production at home to save on plant set-up costs and producing abroad to save on distance costs. Firms facing this trade-off choose between export and foreign production according to their expected profits. The model is brought to the data using a pooled-probit analysis over the period 1996-1999. We find support for the proximity-concentration trade-off. In particular, market size and distance affect positively the probability of foreign production whereas fixed costs have a negative impact on the decision to engage in FDI. --
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Bibliographic InfoPaper provided by University of Tübingen, School of Business and Economics in its series Tübinger Diskussionsbeiträge with number 288.
Date of creation: 2005
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More information through EDIRC
Multinational firms; trade;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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