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A note on firm-productivity and foreign direct investment

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  • Arijit Mukherjee

    (University of Nottingham)

Abstract

Assuming linear demand and unit transportation cost, Head and Ries (2003, 'Heterogeneity and the FDI versus export decision of Japanese manufacturers', Journal of the Japanese and International Economies) conclude that the theoretical prediction of Helpman et al. (2004, 'Export versus FDI with heterogeneous firms', The American Economic Review), which show that the more productive firms undertake FDI and the less productive firms export, does not depend on their assumptions of CES preferences and iceberg transportation costs. Considering iceberg transportation costs in an otherwise similar setup of Head and Ries (2003), we show that the theoretical prediction of Helpman et al. (2004) may not hold. Hence, CES preference in Helpman et al. (2004) is important for their theoretical results.

Suggested Citation

  • Arijit Mukherjee, 2010. "A note on firm-productivity and foreign direct investment," Economics Bulletin, AccessEcon, vol. 30(3), pages 2107-2111.
    • Handle: RePEc:ebl:ecbull:eb-10-00324
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    References listed on IDEAS

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    1. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    2. Sourafel Girma & Richard Kneller & Mauro Pisu, 2005. "Exports versus FDI: An Empirical Test," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(2), pages 193-218, July.
    3. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages 134-161, February.
    4. Head, Keith & Ries, John, 2003. "Heterogeneity and the FDI versus export decision of Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 448-467, December.
    5. Jože P. Damijan & Sašo Polanec & Janez Prašnikar, 2007. "Outward FDI and Productivity: Micro‐evidence from Slovenia," The World Economy, Wiley Blackwell, vol. 30(1), pages 135-155, January.
    6. Arijit Mukherjee & Sugata Marjit, 2009. "Firm productivity and foreign direct investment: a non-monotonic relationship," Economics Bulletin, AccessEcon, vol. 29(1), pages 230-237.
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    Cited by:

    1. Sugata Marjit & Toru Kikuchi, 2011. "Time Zones and FDI with Heterogenous Firms," Discussion Papers Series 425, School of Economics, University of Queensland, Australia.

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    More about this item

    Keywords

    Firm-productivity; Foreign direct investment; Iceberg cost;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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