The Internationalization Process of Firms: from Exports to FDI
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.
|Date of creation:||2013|
|Date of revision:|
|Publication status:||Published by:|
|Contact details of provider:|| Postal: |
Phone: (32 2) 650 30 75
Fax: (32 2) 650 44 75
Web page: http://difusion.ulb.ac.be
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Melitz, Marc J, 2002.
"The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,"
CEPR Discussion Papers
3381, C.E.P.R. Discussion Papers.
- 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.
- Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
- Horst Raff & Michael J. Ryan, 2008.
"Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 144(1), pages 1-31, April.
- Horst Raff & Michael Ryan, 2006. "Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects," CESifo Working Paper Series 1874, CESifo Group Munich.
- Ryan, Michael & Raff, Horst, 2007. "Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects," Economics Working Papers 2007,22, Christian-Albrechts-University of Kiel, Department of Economics.
- Hurn, A S & Wright, Robert E, 1994. "Geology or Economics? Testing Models of Irreversible Investment Using North Sea Oil Data," Economic Journal, Royal Economic Society, vol. 104(423), pages 363-71, March.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474.
- Favero, Carlo A & Pesaran, M Hashem & Sharma, Sunil, 1994. "A Duration Model of Irreversible Oil Investment: Theory and Empirical Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S95-112, Suppl. De.
- Peter Egger & Valeria Merlo, 2012. "BITs Bite: An Anatomy of the Impact of Bilateral Investment Treaties on Multinational Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1240-1266, December.
- Josep M Vilarrubia & Rubén Segura-Cayuela, 2008.
"Uncertainty and entry into export markets,"
2008 Meeting Papers
661, Society for Economic Dynamics.
- Neumayer, Eric & Spess, Laura, 2005.
"Do bilateral investment treaties increase foreign direct investment to developing countries?,"
Elsevier, vol. 33(10), pages 1567-1585, October.
- Eric Neumayer & Laura Spess, 2004. "Do bilateral investment treaties increase foreign direct investment to developing countries?," International Finance 0411004, EconWPA, revised 10 May 2005.
- Sebastian Krautheim, 2013.
Canadian Journal of Economics,
Canadian Economics Association, vol. 46(4), pages 1571-1605, November.
- Oldenski, Lindsay, 2012. "Export Versus FDI and the Communication of Complex Information," Journal of International Economics, Elsevier, vol. 87(2), pages 312-322.
- Tailan Chi & Donald J McGuire, 1996. "Collaborative Ventures and Value of Learning: Integrating the Transaction Cost and Strategic Option Perspectives on the Choice of Market Entry Modes," Journal of International Business Studies, Palgrave Macmillan, vol. 27(2), pages 285-307, June.
- Ines Buono & Harald Fadinger & Romain Aeberhardt, 2009. "Learning and the Dynamics of Exporting: Theory and Evidence from French Firms," 2009 Meeting Papers 606, Society for Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:eca:wpaper:2013/139596. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels)
If references are entirely missing, you can add them using this form.