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Export, Horizontal FDI, or Export Platform FDI with Heterogeneous Firms

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  • Oyamada, Kazuhiko

Abstract

Besides the firm's strategic choice between exporting (motivated by lower fixed costs) or horizontal FDI (motivated by lower trade costs) to serve a foreign market, there is another choice driven by lower factor costs. Export-platform FDI is characterized by investing and producing in a foreign country, while the final output is sold not in the home- or host-country markets but exported to third markets. This paper presents a numerical model that explains the decision of heterogeneous firms, which differ in productivity levels, to serve foreign markets either through exporting from the home country, local subsidiary sales (horizontal FDI), or exporting from a host country (export-platform FDI), in the three-country framework. Experimental simulations with the model clearly show that export-platform productions complement horizontal affiliate productions while direct exporting substitutes. In addition, the firms' operational strategy whether to choose the horizontal FDI responds quite sensitive to the changes in factor prices, and affects the other choices of the substitutable direct exporting and the complementary export-platform FDI.

Suggested Citation

  • Oyamada, Kazuhiko, 2018. "Export, Horizontal FDI, or Export Platform FDI with Heterogeneous Firms," Conference papers 332957, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332957
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    References listed on IDEAS

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