Exporting versus foreign direct investment: Learning through propinquity

Anthony Creane and Kaz Miyagiwa

No 2015-01, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

Abstract: This paper considers the strategic role learning plays on foreign direct investments (FDI) under demand and cost uncertainty. FDI allows a foreign firm to respond more effectively to changing local demand than if it exports. With cost uncertainty, however, FDI has a second effect. Since a foreign firm procures inputs locally as does its home country rival, the problem of learning is transformed from about its private parameter to about the common parameter, which proves harmful in both price and quantity competition. We show that FDI decisions depend on whether the firm faces relatively more demand or cost uncertainty, how differentiated the rival's product is, and to what extent inputs are locally procured.

Keywords: FDI; uncertainty; strategic competition; access mode choice; welfare; oligopoly (search for similar items in EconPapers)
JEL-codes: D83 F12 F21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2015-05-06
New Economics Papers: this item is included in nep-int
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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/27209/070_hiasDP15-01.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hiasdp:2015-01

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