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Uncertain Productivity Growth and the Choice between FDI and Export

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  • Erdal Yalcin
  • Davide Sala

Abstract

While determinants of FDI patterns have received widespread attention, the timing of their surge remains largely unexplained. According to the proximity–concentration trade-off argument, a surge in FDI in times of decaying international transportation costs seemingly represents a paradox. Besides transportation costs, other factors have contextually changed: in particular, the uncertainty that firms bear has increased. Enriching the classical choice problem of a multinational firm with insights from the literature on investment under uncertainty, we illustrate how different types of uncertainty determine the timing and optimal entry mode (i.e. FDI or export) of a multinational enterprise into a new market.

Suggested Citation

  • Erdal Yalcin & Davide Sala, 2014. "Uncertain Productivity Growth and the Choice between FDI and Export," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 189-208, February.
    • Handle: RePEc:bla:reviec:v:22:y:2014:i:1:p:189-208
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    File URL: http://hdl.handle.net/10.1111/roie.12105
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    Cited by:

    1. Davide Sala & Erdal Yalcin, 2015. "Export Experience of Managers and the Internationalisation of Firms," The World Economy, Wiley Blackwell, vol. 38(7), pages 1064-1089, July.
    2. Sourafel Girma & Sandra Lancheros & Alejandro Riaño, 2016. "Global Engagement and Returns Volatility," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(6), pages 814-833, December.
    3. Naudé, Wim & Gries, Thomas & Bilkic, Natasa, 2013. "Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach," IZA Discussion Papers 7346, Institute of Labor Economics (IZA).

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    More about this item

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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