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Export and direct investment as a signal in global markets

Author

Listed:
  • Arijit Mukherjee

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

  • Udo Broll

    (University of Saarland, Germany)

Abstract

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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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/0109.pdf
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    More about this item

    Keywords

    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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