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Firm Productivity and the Foreign-Market Entry Decision

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  • Raff, Horst
  • Ryan, Michael
  • Stähler, Frank

Abstract

We use Japanese firm-level data to examine how a firm?s productivity affects its choice of foreign-market entry strategy. We study a sequence of decisions, starting with the choice between exporting and foreign direct investment (FDI). In the case of FDI, the firm faces two options: greenfield investment or merger and acquisition (M&A). If it selects greenfield investment, it has two ownership choices: whole ownership or a joint venture. Controlling for industry- and country-specific characteristics, we find that the more productive a firm is, the more likely it is to choose FDI rather than exporting, greenfield investment rather than M&A, and whole ownership rather than a joint venture. We also find that the assumed sequence of decisions fits the data better than alternative specifications.

Suggested Citation

  • Raff, Horst & Ryan, Michael & Stähler, Frank, 2008. "Firm Productivity and the Foreign-Market Entry Decision," Economics Working Papers 2008-02, Christian-Albrechts-University of Kiel, Department of Economics.
  • Handle: RePEc:zbw:cauewp:7021
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    Keywords

    Foreign direct investment; merger and acquisition; joint venture; greenfield investment; firm heterogeneity; productivity;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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