Asymmetric effects of trade costs on entry modes: Firm level evidence

Ayça Tekin-Koru

European Economic Review, 2012, vol. 56, issue 2, 277-294

Abstract: Standard foreign direct investment (FDI) theory suggests that falling trade costs should discourage horizontal FDI. Most FDI is horizontal. Yet, the world witnessed an FDI boom in 1990s, a period of striking falls in trade barriers. This paper carries out an empirical analysis with rich, firm-level data on the activities of Swedish multinationals around the globe in manufacturing sectors from 1987 to 1998 to shed light on this apparent conflict. The analysis is based on the predictions of a recent literature with an industrial organization (IO) angle: Trade costs have asymmetric effects on foreign expansion modes. This view posits that falling trade costs encourage entry realized as mergers and acquisitions (M&As), one of the potential explanations for the conflict between received theory and recent trends in FDI. Empirical results confirm the findings of this recent literature and add to it by testing its extensions.

Keywords: Foreign direct investment; Entry modes; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F21 F23 L2 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Working Paper: Asymmetric effects of trade costs on entry modes: Firm level evidence (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:2:p:277-294

DOI: 10.1016/j.euroecorev.2011.08.003

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