Export, Horizontal FDI, or Export Platform FDI with Heterogeneous Firms

Kazuhiko Oyamada

No 332957, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Besides the firm's strategic choice between exporting (motivated by lower fixed costs) or horizontal FDI (motivated by lower trade costs) to serve a foreign market, there is another choice driven by lower factor costs. Export-platform FDI is characterized by investing and producing in a foreign country, while the final output is sold not in the home- or host-country markets but exported to third markets. This paper presents a numerical model that explains the decision of heterogeneous firms, which differ in productivity levels, to serve foreign markets either through exporting from the home country, local subsidiary sales (horizontal FDI), or exporting from a host country (export-platform FDI), in the three-country framework. Experimental simulations with the model clearly show that export-platform productions complement horizontal affiliate productions while direct exporting substitutes. In addition, the firms' operational strategy whether to choose the horizontal FDI responds quite sensitive to the changes in factor prices, and affects the other choices of the substitutable direct exporting and the complementary export-platform FDI.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332957

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