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Foreign direct investment as a signal

Onur Koska (), Ngo Long and Frank Stähler
Authors registered in the RePEc Author Service: Frank Stähler ()

Review of International Economics, 2018, vol. 26, issue 1, 60-83

Abstract: This paper models oligopolistic competition among potential multinational firms in an environment of firm heterogeneity, incomplete information on costs, and strategic interactions. We show that foreign direct investment is more likely if it can serve as a signal of productivity in an environment of incomplete information as firms would like to avoid sending a low productivity signal. Our model shows that this effect is strong enough such that foreign direct investment can be an optimal foreign entry mode even if trade costs are zero.

Date: 2018
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https://doi.org/10.1111/roie.12303

Related works:
Working Paper: Foreign Direct Investment as a Signal (2016) Downloads
Working Paper: Foreign Direct Investment as a Signal (2015) Downloads
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