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Tradability and market penetration costs: Explaining foreign market servicing intensities

Katherine Schmeiser () and Miguel Ricaurte

International Review of Economics & Finance, 2012, vol. 22, issue 1, 190-200

Abstract: Industry level data shows striking differences among sectors in ratios of exports to FDI sales. We identify the elements behind the sectoral differences in the mode of foreign market servicing in the context of a general equilibrium model of monopolistic competition. Our calibration exercise shows that traditional margins such as transportation, fixed entry costs, utility weights, and dispersion of firm productivity are not enough to capture the observed sectoral differences, as is commonly assumed. We propose augmenting the model to allow for sectoral differences in intangible costs of operating in a foreign market in order to explain these observations.

Keywords: Trade; Gravity; FDI; Monopolistic competition; Foreign market access (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.iref.2011.10.011

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