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Uncertain productivity growth and the choice between FDI and export

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  • Yalcin, Erdal

    () (ifo Institute for Economic Research)

  • Sala, Davide

    () (Department of Business and Economics)

Abstract

With aggregate sales by foreign affiliates exceeding world exports, determinants of FDI patterns have received great attention, while the timing of their surge has been understudied. Recent evidence indicates that transportation costs of goods have fallen too little to explain these figures based on the proximity-concentration trade-off argument alone. Contextually, other changes have occurred: in particular, the uncertainty that firms bear has increased. Enriching the classical choice problem of a multinational firm with insights from the investment literature, we show that increased uncertainty along with the sizable fixed costs characterizing engagements on international markets can explain specific FDI patterns.

Suggested Citation

  • Yalcin, Erdal & Sala, Davide, 2012. "Uncertain productivity growth and the choice between FDI and export," Discussion Papers of Business and Economics 19/2012, University of Southern Denmark, Department of Business and Economics.
  • Handle: RePEc:hhs:sdueko:2012_019
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    Cited by:

    1. Davide Sala & Erdal Yalcin, 2015. "Export Experience of Managers and the Internationalisation of Firms," The World Economy, Wiley Blackwell, vol. 38(7), pages 1064-1089, July.
    2. Sourafel Girma & Sandra Lancheros & Alejandro Riaño, 2016. "Global Engagement and Returns Volatility," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(6), pages 814-833, December.
    3. Naudé, Wim & Gries, Thomas & Bilkic, Natasa, 2013. "Firm-Level Heterogeneity and the Decision to Export: A Real Option Approach," IZA Discussion Papers 7346, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Proximity-concentration hypothethis; stochastic processes; real option;

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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