Strategic Decisions of Heterogeneous European Firms in a Multicountry Framework

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.