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FDI versus Exports Substitutes or Complements? A Three Nations Model and Empirical Evidence

Harald Oberhofer () and Michael Pfaffermayr ()

No 12, FIW Working Paper series from FIW

Abstract: There are two main options for companies to serve foreign markets; exports and foreign direct investment (FDI). Based on the Helpman, Melitz and Yeaple (2004) model for two host countries this paper derives a clear theoretical prediction for the decision between both strategies. A bivariate probit model is estimated using AMADEUS database to analyse the probability of using one or the other strategy. The empirical evidence indicates that a considerable number of companies use a combination of both strategies to serve foreign markets, which is in line with the analyzed three country model.

Keywords: Exports; Foreing Direct Investment; Three Nations Model; Bivariate Probit Estimation (search for similar items in EconPapers)
JEL-codes: C35 D21 F12 (search for similar items in EconPapers)
Date: 2008-01
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