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A Structural Model of Export versus Affiliates Production

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  • Kleinert, Jörn
  • Toubal, Farid

Abstract

We 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 Info

Paper provided by University of Tübingen, School of Business and Economics in its series Tübinger Diskussionsbeiträge with number 288.

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Date of creation: 2005
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Handle: RePEc:zbw:tuedps:288

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Keywords: Multinational firms; trade;

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References

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  1. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics.
  2. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
  3. Claudia M. Buch & Jörn Kleinert & Alexander Lipponer & Farid Toubal, 2005. "Determinants and effects of foreign direct investment: evidence from German firm-level data," Economic Policy, CEPR & CES & MSH, vol. 20(41), pages 52-110, 01.
  4. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June.
  5. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
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Citations

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Cited by:
  1. Brandes, Julia & Schüle, Tobias, 2007. "IMF's assistance: Devil's kiss or guardian angel?," Tübinger Diskussionsbeiträge 310, University of Tübingen, School of Business and Economics.
  2. Hager, Svenja & Schöbel, Rainer, 2006. "Deriving the dependence structure of portfolio credit derivatives using evolutionary algorithms," Tübinger Diskussionsbeiträge 300, University of Tübingen, School of Business and Economics.
  3. Heger, Diana & Zaby, Alexandra K., 2009. "The propensity to patent with horizontally differentiated products: An empirical investigation," Tübinger Diskussionsbeiträge 324, University of Tübingen, School of Business and Economics.
  4. Schüle, Tobias, 2006. "Creditor coordination with social learning and endogenous timing of credit decisions," Tübinger Diskussionsbeiträge 307, University of Tübingen, School of Business and Economics.
  5. Frontczak, Robert & Schöbel, Rainer, 2008. "Pricing American options with Mellin transforms," Tübinger Diskussionsbeiträge 319, University of Tübingen, School of Business and Economics.
  6. Frontczak, Robert & Schöbel, Rainer, 2009. "On modified Mellin transforms, Gauss-Laguerre quadrature, and the valuation of American call options," Tübinger Diskussionsbeiträge 320, University of Tübingen, School of Business and Economics.
  7. Maier, Ramona & Merz, Michael, 2008. "Credibility theory and filter theory in discrete and continuous time," Tübinger Diskussionsbeiträge 318, University of Tübingen, School of Business and Economics.
  8. Felbermayr, Gabriel & Toubal, Farid, 2010. "Cultural proximity and trade," Munich Reprints in Economics 20351, University of Munich, Department of Economics.
  9. Krautheim, Sebastian, 2009. "Export-Supporting FDI," Discussion Paper Series 1: Economic Studies 2009,20, Deutsche Bundesbank, Research Centre.
  10. Yalcin, Erdal, 2007. "The proximity-concentration trade-off in a dynamic framework," Tübinger Diskussionsbeiträge 312, University of Tübingen, School of Business and Economics.
  11. Zaby, Alexandra K., 2009. "The propensity to patent in oligopolistic markets," Tübinger Diskussionsbeiträge 323, University of Tübingen, School of Business and Economics.
  12. Dymke, Björn M. & Walter, Andreas, 2006. "Insider trading in Germany: Do corporate insiders exploit inside information?," Tübinger Diskussionsbeiträge 309, University of Tübingen, School of Business and Economics.
  13. Heger, Diana & Zaby, Alexandra K., 2009. "The propensity to patent with vertically differentiated products: An empirical investigation," Tübinger Diskussionsbeiträge 325, University of Tübingen, School of Business and Economics.
  14. Frontczak, Robert, 2009. "Valuing options in Heston's stochastic volatility model: Another analytical approach," Tübinger Diskussionsbeiträge 326, University of Tübingen, School of Business and Economics.
  15. Rostek, Stefan & Schöbel, Rainer, 2006. "Risk preference based option pricing in a fractional Brownian market," Tübinger Diskussionsbeiträge 299, University of Tübingen, School of Business and Economics.

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