Export versus FDI in services

International Monetary Fund
Authors registered in the RePEc Author Service: Ajay Shah (), Rudrani Bhattacharya and Ila Patnaik ()

No 10/290, IMF Working Papers from International Monetary Fund

Abstract: In the literature on exports and investment, most productive firms are seen to invest abroad. In the Helpman et al. (2004) model, costs of transportation play a critical role in the decision about whether to serve foreign customers by exporting, or by producing abroad. We consider the case of tradable services, where the marginal cost of transport is near zero. We argue that in the purchase of services, buyers face uncertainty about product quality, especially when production is located far away. Firm optimisation then leads less productive firms to self-select themselves for FDI. We test this prediction with data from the Indian software industry and find support for it.

Keywords: Exports; Productivity; Economic models; Foreign investment; Services sector (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-int
Date: 2010-12-01
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Related works:
Journal Article: Export Versus FDI in Services (2012)
Working Paper: Export versus FDI in services (2011)
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