FDI as a Signal of Quality
This paper considers a new-product firm's choice between exporting and foreign direct investment (FDI) to access foreign markets. We find that, when quality is unknown to buyers, the firm may choose FDI over exporting to signal quality, even though FDI is a costlier mode of access than exporting. We then use the model to study the effect of local labor requirement policy imposed by the host country government.
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- Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004.
"Export versus FDI with Heterogeneous Firms,"
3229098, Harvard University Department of Economics.
- Paul R. Milgrom & John Roberts, 1984.
"Price and Advertising Signals of Product Quality,"
Cowles Foundation Discussion Papers
709, Cowles Foundation for Research in Economics, Yale University.
- Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
- Kyle Bagwell, 1990.
"Optimal Export Policy for a New-Product Monopoly,"
898, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Wolfgang Mayer, 1984. "The Infant-Export Industry Argument," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 249-269, May.
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