The Internationalization Process of Firms: from Exports to FDI

Andre Sapir, Maurizio Zanardi and Paola Conconi

No 9332, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper shows that uncertainty can lead firms to follow a gradual internationalization process. We describe a model in which firms are uncertain about their ability to earn profits in a foreign market and must decide whether or not to serve it, and whether to do so through exports or foreign affiliate sales. We show that a firm may first test the foreign market via exports, before engaging in foreign direct investment (FDI). To assess the evidence, we exploit a unique dataset of firm-level exports and FDI in individual destination countries, covering all Belgian companies over the 1998-2008 period. We show that a firm?s FDI entry in a foreign market is almost always preceded by its export entry. More uncertain foreign market conditions lead new exporters to delay FDI entry decisions. Our analysis suggests that exports and FDI, although substitutes from a static perspective, may be complements over time, since the knowledge acquired through export experimentation can lead firms to start investing abroad.

Keywords: Experimentation; Exports; Fdi; Uncertainty (search for similar items in EconPapers)
JEL-codes: D21 F10 F13 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-bec, nep-cse and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Related works:
Journal Article: The internationalization process of firms: From exports to FDI (2016)
Working Paper: The Internationalization Process of Firms: from Exports to FDI (2013)
Working Paper: The internationalization process of firms: From exports to FDI ? (2010)
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