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The Role of FDI in Fostering Exports from the Host Country

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  • Pavla Vozárová

    (University of Economics, Prague)

Abstract

In this paper, I propose a theoretical model analyzing the impact of FDI on exports from the host country. Using the framework of monopolistic competition with heterogenous firms, I show that the entry of highly efficient MNEs increases competition in the export market, which leads to crowding-out of domestic exporters. As a result, even though overall efficiency of the industry increases, exports by this industry may decrease.Further on, I add into my model a potential spillover effect that FDI can induce by lowering costs associated to export activities for all firms. I show that in such situation, the increased efficiency is more likely to outweigh the negative competition effect, resulting in larger exports from the host country.

Suggested Citation

  • Pavla Vozárová, 2015. "The Role of FDI in Fostering Exports from the Host Country," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 4(3), pages 94-114, September.
    • Handle: RePEc:sek:jijoes:v:4:y:2015:i:3:p:94-114
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    References listed on IDEAS

    as
    1. Cohen, Stephen D., 2007. "Multinational Corporations and Foreign Direct Investment: Avoiding Simplicity, Embracing Complexity," OUP Catalogue, Oxford University Press, number 9780195179361.
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    3. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    5. Renáta Kosová, 2010. "Do Foreign Firms Crowd Out Domestic Firms? Evidence from the Czech Republic," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 861-881, November.
    6. Greenaway, David & Sousa, Nuno & Wakelin, Katharine, 2004. "Do domestic firms learn to export from multinationals?," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1027-1043, November.
    7. Koenig, Pamina & Mayneris, Florian & Poncet, Sandra, 2010. "Local export spillovers in France," European Economic Review, Elsevier, vol. 54(4), pages 622-641, May.
    8. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    More about this item

    Keywords

    FDI; MNE; spillovers; exports;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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