The Internationalization Process of Firms: from Exports to FDI

Paola Conconi, Andre Sapir and Maurizio Zanardi

Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: This paper shows that uncertainty can lead firms to follow a gradual internationalizationprocess. We describe a model in which firms are uncertain abouttheir ability to earn profits in a foreign market and must decide whether or notto serve it, and whether to do so through exports or foreign affiliate sales. Weshow that a firm may first test the foreign market via exports, before engagingin foreign direct investment (FDI). To assess the evidence, we exploit a uniquedataset of firm-level exports and FDI in individual destination countries, coveringall Belgian companies over the 1998-2008 period. We show that a firm's FDI entryin a foreign market is almost always preceded by its export entry. More uncertainforeign market conditions lead new exporters to delay FDI entry decisions. Ouranalysis suggests that exports and FDI, although substitutes from a static perspective,may be complements over time, since the knowledge acquired throughexport experimentation can lead firms to start investing abroad.

Keywords: uncertainty; experimentation; exports; FDI (search for similar items in EconPapers)
JEL-codes: D21 F10 F13 (search for similar items in EconPapers)
Pages: 45 p.
Date: 2013
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 (14)

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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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