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Export, Foreign Direct Investment, and Joint Ventures: Learning the Rival's Costs through Propinquity

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  • Anthony Creane
  • Kaz Miyagiwa

Abstract

We examine the role of cost uncertainty in a firm's choice between exporting and foreign investment in oligopolistic industry. We consider both foreign direct investment and an international joint venture, and allow country-specific and firm-specific cost uncertainty. Unlike exporting, either form of foreign investment exposes home and foreign firms to common country-specific cost shocks, implying a better knowledge of each other's country-specific shocks. Further, a joint venture allows the firms to learn each other's firm-specific cost. A firm's plant location decision depends on the interaction of these two effects, which depend on the type of competition and the substitutability of the firm's products.

Suggested Citation

  • Anthony Creane & Kaz Miyagiwa, 2007. "Export, Foreign Direct Investment, and Joint Ventures: Learning the Rival's Costs through Propinquity," ISER Discussion Paper 0691, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0691
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    References listed on IDEAS

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    Cited by:

    1. CREANE, Anthony & MIYAGIWA, Kaz, 2015. "Exporting versus foreign direct investment: Learning through propinquity," Discussion paper series 2015-01, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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