Export-Supporting FDI

Sebastian Krautheim ()

No 2009,20, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre

Abstract: Wholesale and retail trade affiliates owned by parent firms in manufacturing account for a considerable fraction of overall affiliate sales. Although quantitatively important, this Export-Supporting FDI (ESFDI) activity has received little attention in the literature. This paper includes ESFDI into a model of trade and horizontal FDI with heterogeneous firms. ESFDI is characterized by export-supporting distribution and service activities in the foreign market while production remains in the home country. This introduces some complementarity between trade and FDI. In the model falling trade costs lead to an increase in both overall trade and overall FDI activity. This provides a possible explanation for the simultaneous rise in trade and FDI in the data. An empirical analysis using German firm level FDI data confirms the quantitative importance of ESFDI. The data also support crucial implications of the theoretical model. Parents choosing ESFDI are smaller than firms choosing to produce in the foreign market. And the importance of ESFDI relative to horizontal FDI is strongest when variable trade costs are low. --

Keywords: Exports; horizontal FDI; multinational companies; wholesale trade (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2009

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Related works:
Working Paper: Export-Supporting FDI (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:bubdp1:200920

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