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The internationalization process of firms: From exports to FDI

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  • Conconi, Paola
  • Sapir, André
  • Zanardi, Maurizio

Abstract

We examine how uncertainty affects firms' internationalization choices. We begin by unveiling a new empirical regularity: using a unique dataset that allows us to study the dynamics of firms' exports and foreign direct investments (FDI) in individual destinations, we show that most firms serve a market via exports before investing there. To rationalize this pattern, we describe a model in which firms are uncertain about their profitability in a foreign market and may experiment via exports before engaging in FDI. In line with this idea, we show that the probability that a firm starts investing in a foreign country increases with its export experience in that country. In more uncertain destinations, firms delay FDI entry, experimenting longer with exports before establishing foreign affiliates.

Suggested Citation

  • Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
  • Handle: RePEc:eee:inecon:v:99:y:2016:i:c:p:16-30
    DOI: 10.1016/j.jinteco.2015.12.004
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    Keywords

    Exports; FDI; Uncertainty; Experimentation;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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