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.
|Date of creation:||Mar 2007|
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- Bagwell, Kyle, 1991.
"Optimal Export Policy for a New-Product Monopoly,"
American Economic Review,
American Economic Association, vol. 81(5), pages 1156-69, December.
- 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.
- Wolfgang Mayer, 1984. "The Infant-Export Industry Argument," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 249-69, May.
- Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004.
"Export versus FDI with Heterogeneous Firms,"
3229098, Harvard University Department of Economics.
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