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Strategic Decisions of Heterogeneous European Firms in a Multicountry Framework

Author

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  • Marti, Josep
  • Alguacil, Maite
  • Orts, Vicente

Abstract

This paper examines the relationship between firms’ heterogeneity and the internationalization decision regarding the number of markets served through both exports and FDI. Theoretically, we base on Helpman et al. (2004) and Yeaple (2009) as a basic framework for understanding this connection. For the empirical analysis, we use firm-level information of manufacturing firms from seven EU countries, as collected in the EFIGE dataset. Two different methodologies have been employed in this study: first, in order to evaluate how firms’ heterogeneity (related with productivity, size, R&D, years of establishment, centralized decision making, human and physical capital intensity), influences the decision to expand exports or foreign production beyond to a single foreign market, we estimate a multinomial logit model. The outcomes show that the increasing complexity in the internationalization strategies of multinationals is not independent of the different characteristics of the firms involved. Second, to determine the extent to which changes in firms’ characteristics influence the number of foreign markets to be attended through exports or foreign direct investment, we estimate a quantile regression model. Our estimates confirm the significant role of firm heterogeneity on the scope of international activities. However, different results across quantiles are obtained, suggesting the existence of heterogeneous effects and non-linearities among the whole distribution of the number of foreign markets served.

Suggested Citation

  • Marti, Josep & Alguacil, Maite & Orts, Vicente, 2015. "Strategic Decisions of Heterogeneous European Firms in a Multicountry Framework," MPRA Paper 65450, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65450
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    File URL: https://mpra.ub.uni-muenchen.de/65450/1/MPRA_paper_65450.pdf
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    References listed on IDEAS

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    1. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    2. Chen, Maggie Xiaoyang & Moore, Michael O., 2010. "Location decision of heterogeneous multinational firms," Journal of International Economics, Elsevier, vol. 80(2), pages 188-199, March.
    3. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
    4. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," American Economic Review, American Economic Association, vol. 94(2), pages 150-154, May.
    5. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    6. Carlo Altomonte & Tommaso Aquilante, 2012. "The EU-EFIGE/Bruegel-Unicredit dataset," Working Papers 753, Bruegel.
    7. 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.
    8. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731.
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    11. Fukunari Kimura & Kozo Kiyota, 2006. "Exports, FDI, and Productivity: Dynamic Evidence from Japanese Firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(4), pages 695-719, December.
    12. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    13. Tomiura, Eiichi, 2007. "Foreign outsourcing, exporting, and FDI: A productivity comparison at the firm level," Journal of International Economics, Elsevier, vol. 72(1), pages 113-127, May.
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    15. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    16. Sourafel Girma & Richard Kneller & Mauro Pisu, 2005. "Exports versus FDI: An Empirical Test," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(2), pages 193-218, July.
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    More about this item

    Keywords

    Firm heterogeneity; Internationalization strategy; Export; FDI;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • 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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