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Tradability and market penetration costs: Explaining foreign market servicing intensities

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  • Schmeiser, Katherine N.
  • Ricaurte, Miguel F.

Abstract

Industry level data shows striking differences among sectors in ratios of exports to FDI sales. We identify the elements behind the sectoral differences in the mode of foreign market servicing in the context of a general equilibrium model of monopolistic competition. Our calibration exercise shows that traditional margins such as transportation, fixed entry costs, utility weights, and dispersion of firm productivity are not enough to capture the observed sectoral differences, as is commonly assumed. We propose augmenting the model to allow for sectoral differences in intangible costs of operating in a foreign market in order to explain these observations.

Suggested Citation

  • Schmeiser, Katherine N. & Ricaurte, Miguel F., 2012. "Tradability and market penetration costs: Explaining foreign market servicing intensities," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 190-200.
    • Handle: RePEc:eee:reveco:v:22:y:2012:i:1:p:190-200
    DOI: 10.1016/j.iref.2011.10.011
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    Cited by:

    1. Schmeiser, Katherine N., 2013. "The firm export and FDI choice in the context of gravity," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 592-596.

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    More about this item

    Keywords

    Trade; Gravity; FDI; Monopolistic competition; Foreign market access;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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