Foreign Direct Investment as a Signal

Onur Koska, Ngo Long and Frank Stähler

No 1602, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This paper models competition among multinational firms in an environment of firm heterogeneity, incomplete cost information and strategic interaction. In this context, FDI serves as a signal of productivity: when firms sort into exporters and multinationals, they also show whether they have low or high productivity. We show that the signaling effect of FDI increases the FDI incentive as firms would like to avoid sending a low productivity signal.

Keywords: Foreign Direct Investment; Trade; Firm Heterogeneity; Incomplete Information; Signaling (search for similar items in EconPapers)
JEL-codes: F23 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-02, Revised 2016-02
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://erc.metu.edu.tr/en/system/files/menu/series16/1602.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Foreign direct investment as a signal (2018)
Working Paper: Foreign Direct Investment as a Signal (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:1602

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