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Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis

  • Katayama, Seiichi
  • Lahiri, Sajal
  • Tomiura, Eiichi

This paper first of all develops a Cournot oligopolistic model with heterogeneous firms to examine each firm's choice between export-oriented foreign direct investments (FDI) and FDI to serve the host-country market. It is shown that there exist a critical level of efficiency such that all firms below that level choose the former and those above it the latter. The hypothesis is tested using firm-level data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.

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File URL: http://www.sciencedirect.com/science/article/pii/S0922142511000041
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Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 23 (2011)
Issue (Month): 3 ()
Pages: 170-177

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Handle: RePEc:eee:japwor:v:23:y:2011:i:3:p:170-177
DOI: 10.1016/j.japwor.2011.02.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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  1. Grossman, Gene & Helpman, Elhanan, 2002. "Outsourcing Versus FDI in Industry Equilibrium," CEPR Discussion Papers 3647, C.E.P.R. Discussion Papers.
  2. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, vol. 72(1), pages 113-127, May.
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  8. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
  9. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
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  20. repec:hrv:faseco:4784029 is not listed on IDEAS
  21. Leahy, Dermot & Montagna, Catia, 2001. "Strategic Trade Policy with Heterogeneous Costs," Bulletin of Economic Research, Wiley Blackwell, vol. 53(3), pages 177-82, July.
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  28. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, vol. 95(2), pages 19-24, May.
  29. Itagaki, Takao, 1979. "Theory of the Multinational Firm: An Analysis of Effects of Government Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 437-48, June.
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