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Export and direct investment as a signal in global markets


  • Arijit Mukherjee

    () (Department of Economics, Keele University, Keele,)

  • Udo Broll

    (University of Saarland, Germany)


This paper examines the production strategies of an international firm. We show that foreign direct investment acts as a signal to overcome an asymmetric information problem in the host-country. We find that a host-country will prefer a situation where a technologically superior (inferior) firm does direct investment (export) compared to the situations where all or neither types of foreign firms are investing abroad. Since, the technologically superior (inferior) firm does direct investment (export) for moderate cost of direct investment, this finding suggests higher host-country welfare for moderate cost of direct investment compared to very small or very large costs of direct investment.

Suggested Citation

  • Arijit Mukherjee & Udo Broll, 2001. "Export and direct investment as a signal in global markets," Keele Department of Economics Discussion Papers (1995-2001) 2001/09, Department of Economics, Keele University.
  • Handle: RePEc:kee:keeldp:2001/09

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    References listed on IDEAS

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    6. Raymond J. Deneckere & R. Preston McAfee, 1996. "Damaged Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 149-174, June.
    7. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October.
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    More about this item


    Asymmetric information; Export; Foreign direct investment;

    JEL classification:

    • 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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