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Export-Supporting FDI

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  • Sebastian Krautheim

Abstract

Wholesale trade affiliates account for a considerable fraction of the sales of Multinational Companies (MNCs). However, this and similar types of FDI, aiming at facilitating export activities, have received little attention in the literature. In this paper export-supporting FDI (ESFDI) which is characterized by destination-market specific export-supporting distribution and service activities in the foreign market, keeping production in the home country, is introduced as a theoretical concept. It is included into a model of international trade and FDI with heterogeneous firms. In equilibrium lower trade costs increase ESFDI. This implies that both FDI activitiesand trade volumes increase at the same time. The model thus provides a rationale for the positive correlation between trade and FDI activity observed in the 1990s and the prevalence of intra Euro-area investments in the FDI activities of Euro-area MNCs, which are both at odds with the 'proximity-concentration trade-off' governing standard models of horizontal FDI.

Suggested Citation

  • Sebastian Krautheim, 2007. "Export-Supporting FDI," Economics Working Papers ECO2007/24, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2007/24
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    References listed on IDEAS

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    Cited by:

    1. Engel, Dirk & Procher, Vivien, 2009. "Export, FDI and Productivity – Evidence for French Firms," Ruhr Economic Papers 111, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Spies, Julia, 2010. "Network and border effects: Where do foreign multinationals locate in Germany?," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 20-32, January.
    3. Dirk Engel & Vivien Procher, 2013. "Home Firm Performance After Foreign Investments and Divestitures," The World Economy, Wiley Blackwell, vol. 36(12), pages 1478-1493, December.
    4. Zhan Qu & Horst Raff & Nicolas Schmitt, 2015. "Inventory Control and Intermediation in Global Supply Chains," CESifo Working Paper Series 5269, CESifo Group Munich.
    5. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, September.
    6. Bruce A. Blonigen & Donghyun Lee, 2016. "Heterogeneous Frictional Costs Across Industries in Cross-border Mergers and Acquisitions," NBER Working Papers 22546, National Bureau of Economic Research, Inc.
    7. repec:eee:reveco:v:51:y:2017:i:c:p:645-659 is not listed on IDEAS
    8. Jörn Kleinert & Farid Toubal, 2013. "Production versus distribution-oriented FDI," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 423-442, September.
    9. Martin Coiteux & Patrick Rizzetto & Lena Suchanek & Jane Voll, 2014. "Why Do Canadian Firms Invest and Operate Abroad? Implications for Canadian Exports," Discussion Papers 14-7, Bank of Canada.
    10. Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
    11. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
    12. Luigi Bonatti & Andrea Fracasso, 2012. "A Germans� dilemma: save the euro or preserve their socio-economic model," Department of Economics Working Papers 1207, Department of Economics, University of Trento, Italia.
    13. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, September.
    14. V. Vicard, 2015. "Profit shifting through transfer pricing: evidence from French firm level trade data," Working papers 555, Banque de France.
    15. Schwab, Jakob & Ortseifer, Christina, 2015. "Reaping the Gains: Specialization and Capital Flows," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113194, Verein für Socialpolitik / German Economic Association.
    16. repec:bla:ecinqu:v:55:y:2017:i:2:p:778-793 is not listed on IDEAS

    More about this item

    Keywords

    exports; horizontal FDI; multinational companies; wholesale trade;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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