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Export and direct investment as a signal in global markets

Listed author(s):
  • 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.

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Paper provided by Department of Economics, Keele University in its series Keele Department of Economics Discussion Papers (1995-2001) with number 2001/09.

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Length: 21 pages
Date of creation: Nov 2001
Publication status: Published in
Handle: RePEc:kee:keeldp:2001/09
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