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The Internationalization Process of Firms: from Exports to FDI

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  • Paola Conconi
  • André Sapir
  • Maurizio Zanardi

Abstract

This paper shows that uncertainty can lead firms to follow a gradual internationalizationprocess. We describe a model in which firms are uncertain abouttheir ability to earn profits in a foreign market and must decide whether or notto serve it, and whether to do so through exports or foreign affiliate sales. Weshow that a firm may first test the foreign market via exports, before engagingin foreign direct investment (FDI). To assess the evidence, we exploit a uniquedataset of firm-level exports and FDI in individual destination countries, coveringall Belgian companies over the 1998-2008 period. We show that a firm's FDI entryin a foreign market is almost always preceded by its export entry. More uncertainforeign market conditions lead new exporters to delay FDI entry decisions. Ouranalysis suggests that exports and FDI, although substitutes from a static perspective,may be complements over time, since the knowledge acquired throughexport experimentation can lead firms to start investing abroad.

Suggested Citation

  • Paola Conconi & André Sapir & Maurizio Zanardi, 2013. "The Internationalization Process of Firms: from Exports to FDI," Working Papers ECARES ECARES 2013-09, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/139596
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    More about this item

    Keywords

    uncertainty; experimentation; exports; FDI;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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