EconPapers    
Economics at your fingertips  
 

Fixed Costs in Exporting and Investing

Youngmin Baek and Kazunobu Hayakawa

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This study quantifies the fixed costs of export and outward foreign direct investment (FDI). Specifically, we compute the ratio of fixed costs for FDI to those for exports, which is called the "fixed cost ratio" (FCR). To do so, we solve an equation derived from the theoretical model of the choice between exporting and FDI. We apply this method to exports and FDI from Japan to 68 countries during the period 2002-2018. Our findings can be summarized as follows: In terms of median values, the FCR is estimated to be approximately 10, indicating that the fixed costs for FDI are approximately 10 times higher than those for exports. Furthermore, our regression analyses on the determinants of the FCR show a significantly negative effect of regional trade agreements (RTAs) on the FCR, which indicates that RTAs contribute to reducing fixed costs of FDI more greatly than those of exporting. This result has important implications for the RTAs' trade creation effect. Finally, we conduct simulation analyses of the effect of RTAs on the ratio of exports to FDI sales.

Pages: 33 pages
Date: 2022-03
New Economics Papers: this item is included in nep-cwa and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.rieti.go.jp/jp/publications/dp/22e023.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:22023

Access Statistics for this paper

More papers in Discussion papers from Research Institute of Economy, Trade and Industry (RIETI) Contact information at EDIRC.
Bibliographic data for series maintained by TANIMOTO, Toko ().

 
Page updated 2024-05-07
Handle: RePEc:eti:dpaper:22023