Firm Productivity and Mode of Foreign Expansion: Evidence from Taiwanese Manufacturing Firms

Yu-Pei Hsu

Global Economic Review, 2016, vol. 45, issue 4, 405-415

Abstract: This paper builds on the recent literature on firm heterogeneity in international trade and foreign direct investment (FDI), and aims to empirically examine how firm productivity affects a firm’s foreign market entry strategy beyond the simple binary choice between exporting and FDI. Utilizing the panel data of Taiwanese manufacturing firms during 2002–2012, we further classify FDI methods by whole ownership or a joint venture to investigate a firm’s foreign expansion decision. By performing Kolmogorov–Smirnov (KS) tests, we find that if a firm is more productive, it is more likely to choose FDI rather than exporting. However, productivity of firms choosing whole ownership is not so different from choosing a joint venture. Furthermore, a more productive firm is more likely to conduct both whole ownership of the foreign subsidiary and a joint venture formation in the case of FDI.

Date: 2016
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DOI: 10.1080/1226508X.2016.1218293

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