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Fixed costs in exporting and investing

Author

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  • Baek, Youngmin
  • Hayakawa, Kazunobu

Abstract

This study quantifies the fixed costs of export and outward foreign direct investment (FDI). Specifically, we compute the ratio of fixed costs for FDI to those for exports, which is called the “fixed cost ratio” (FCR). To do so, we solve an equation derived from the theoretical model of the choice between exporting and FDI. We apply this method to exports and FDI from Japan to 68 countries during 2002–2018. Our findings can be summarized as follows: In terms of median values, the FCR is estimated to be approximately 10, indicating that the fixed costs for FDI are approximately 10 times higher than those for exports. Furthermore, our regression analyses on the determinants of the FCR show a significantly negative association of regional trade agreements (RTAs) with the FCR. This result has important implications for the RTAs’ trade creation effect. Finally, we conduct simulation analyses of the effect of RTAs on the ratio of exports to FDI sales.

Suggested Citation

  • Baek, Youngmin & Hayakawa, Kazunobu, 2026. "Fixed costs in exporting and investing," Structural Change and Economic Dynamics, Elsevier, vol. 78(C), pages 136-150.
    • Handle: RePEc:eee:streco:v:78:y:2026:i:c:p:136-150
    DOI: 10.1016/j.strueco.2026.03.006
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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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