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Production versus Distribution-oriented FDI

  • Jörn Kleinert

    ()

    (Eberhard Karls Universität Tübingen - Tübingen Universität - Tübingen University)

  • Farid Toubal

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

The business literature has long recognized the importance of multinationals' distribution networks. The empirical analysis of distribution-oriented FDI has, however, received little attention which is at least partly due to the lack of appropriate data. We present a slightly modified version of Helpman, Melitz, and Yeaple (2004) that explicitly models the possibility for a multinational firm to export through its wholesale trade affiliate. We analyze the multinational firms' choice between foreign production and foreign distribution. Our empirical analysis uses different discrete choice models and alternative specifications for several sub-samples of multinational firms. We consider complex foreign sales strategies and correct for the sample selection bias that arises because we only observe firms that have foreign affiliates. Our results show that the decision between distribution and production-oriented FDI is based on the trade-off between fixed and variable costs

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00608510.

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Date of creation: 31 Oct 2010
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Handle: RePEc:hal:cesptp:hal-00608510
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  2. Sebastian Krautheim, 2007. "Export-Supporting FDI," Economics Working Papers ECO2007/24, European University Institute.
  3. Claudia Buch & Jörn Kleinert & Alexander Lipponer & Farid Toubal, 2005. "Determinants and Effects of Foreign Direct Investment: Evidence from German Firm-Level Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311578, HAL.
  4. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
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