IDEAS home Printed from https://ideas.repec.org/a/jfr/rwe111/v6y2015i1p20-35.html
   My bibliography  Save this article

Exchange Rate Movements, Foreign Direct Investment, and Domestic R&D

Author

Listed:
  • Kun-Ming Chen
  • Chia-Ching Lin
  • Shu-Fei Yang

Abstract

This paper develops a game-theoretical model to investigate heterogeneous firms¡¯ entry mode choice of international expansion. The distinct feature of this paper is that exchange rate, R&D competition, and intra-industry firm heterogeneity are incorporated into the theoretical framework. The possible impact of a firm¡¯s outward foreign direct investment (OFDI) on its R&D spending and other non-OFDI firms¡¯ R&D spending is also examined. Our analytical results indicate that, if host country has lower labor costs, when facing rising domestic labor costs or appreciation of home currency, a firm with lower productivity in production or R&D activity will choose OFDI, whereas the firms with higher productivity will produce at home and export. In addition, our results demonstrate that the impact of OFDI on R&D spending is ambiguous, depending on firm heterogeneity as well as the wage gap between home country and host country.

Suggested Citation

  • Kun-Ming Chen & Chia-Ching Lin & Shu-Fei Yang, 2015. "Exchange Rate Movements, Foreign Direct Investment, and Domestic R&D," Research in World Economy, Research in World Economy, Sciedu Press, vol. 6(1), pages 20-35, March.
    • Handle: RePEc:jfr:rwe111:v:6:y:2015:i:1:p:20-35
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/rwe/article/view/6195/3708
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/rwe/article/view/6195
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen, 1995. "Exporters, Jobs, and Wages in U.S. Manufacturing: 1976-1987," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995 Micr), pages 67-119.
    2. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    4. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," NBER Working Papers 9439, National Bureau of Economic Research, Inc.
    5. Chunlai Chen, 2011. "Foreign Direct Investment in China," Books, Edward Elgar Publishing, number 14100.
    6. repec:bla:rdevec:v:14:y:2010:i:s1:p:466-486 is not listed on IDEAS
    7. 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.
    8. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.
    9. John H. Dunning, 1977. "Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach," Palgrave Macmillan Books, in: Bertil Ohlin & Per-Ove Hesselborn & Per Magnus Wijkman (ed.), The International Allocation of Economic Activity, chapter 12, pages 395-418, Palgrave Macmillan.
    10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    11. Lu, Chia-Hui, 2007. "Moving up or moving out? A unified theory of R&D, FDI, and trade," Journal of International Economics, Elsevier, vol. 71(2), pages 324-343, April.
    12. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages 134-161, February.
    13. Judy Hsu, 2011. "How do innovation and exchange rate changes affect firms' mode of foreign expansion?," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(4), pages 429-447.
    14. Petit, Maria-Luisa & Sanna-Randaccio, Francesca, 2000. "Endogenous R&D and foreign direct investment in international oligopolies," International Journal of Industrial Organization, Elsevier, vol. 18(2), pages 339-367, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    2. Flora Bellone & Patrick Musso & Lionel Nesta & Michel Quere, 2008. "The U-Shaped Productivity Dynamics of French Exporters," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 144(4), pages 636-659, December.
    3. Richard E. Baldwin & Rikard Forslid, 2010. "Trade Liberalization with Heterogeneous Firms," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 161-176, May.
    4. Pinar Celikkol Geylani & Magdalena Kapelko & Spiro E. Stefanou, 2021. "Dynamic productivity change differences between global and non-global firms: a firm-level application to the U.S. food and beverage industries," Operational Research, Springer, vol. 21(2), pages 901-923, June.
    5. Qun Bao & Jiuli Huang & Yanling Wang, 2015. "Productivity and Firms’ Sales Destination: Chinese Characteristics," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 620-637, August.
    6. Pol Antràs & Elhanan Helpman, 2006. "Contractual Frictions and Global Sourcing," NBER Working Papers 12747, National Bureau of Economic Research, Inc.
    7. Chacha, Peter Wankuru & Kirui, Benard Kipyegon & Wiedemann, Verena, 2024. "Supply Chains in Times of Crisis: Evidence from Kenya’s Production Network," World Development, Elsevier, vol. 173(C).
    8. Massimo Del Gatto & Gianmarco I. P. Ottaviano & Marcello Pagnini, 2008. "Openness To Trade And Industry Cost Dispersion: Evidence From A Panel Of Italian Firms," Journal of Regional Science, Wiley Blackwell, vol. 48(1), pages 97-129, February.
    9. Cassey Lee, . "The Exporting and Productivity Nexus: Does Firm Size Matter?," Chapters, in: Chin Hee Hahn & Dionisius A. Narjoko (ed.), Globalization and Performance of Small and Large Firms, chapter 8, pages VIII-1 - , Economic Research Institute for ASEAN and East Asia (ERIA).
    10. Monte, Ferdinando, 2011. "Skill bias, trade, and wage dispersion," Journal of International Economics, Elsevier, vol. 83(2), pages 202-218, March.
    11. Kiyota, Kozo & Urata, Shujiro, 2008. "The role of multinational firms in international trade: The case of Japan," Japan and the World Economy, Elsevier, vol. 20(3), pages 338-352, August.
    12. Okubo, Toshihiro & Picard, Pierre M. & Thisse, Jacques-François, 2010. "The spatial selection of heterogeneous firms," Journal of International Economics, Elsevier, vol. 82(2), pages 230-237, November.
    13. Aida Caldera, 2010. "Innovation and exporting: evidence from Spanish manufacturing firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(4), pages 657-689, December.
    14. Fontanelli, Luca & Guerini, Mattia & Napoletano, Mauro, 2023. "International trade and technological competition in markets with dynamic increasing returns," Journal of Economic Dynamics and Control, Elsevier, vol. 149(C).
    15. Rigby, David L. & Kemeny, Thomas & Cooke, Abigail, 2017. "Plant exit and U.S. imports from low-wage countries," International Economics, Elsevier, vol. 149(C), pages 27-40.
    16. Ingo Geishecker & Philipp J. H. Schröder & Allan Sørensen, 2017. "Explaining the size differences of exporter premia: theory and evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 327-351, May.
    17. Nguyen, Daniel X., 2012. "Demand uncertainty: Exporting delays and exporting failures," Journal of International Economics, Elsevier, vol. 86(2), pages 336-344.
    18. Gopinath, Munisamy & Sheldon, Ian M. & Echeverria, Rodrigo, 2007. "Firm Heterogeneity and International Trade: Implications for Agricultural and Food Industries," Trade Issues Papers 9349, International Agricultural Trade Research Consortium.
    19. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    20. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2004. "Exports, international investment, and plant performance: evidence from a non-parametric test," Economics Letters, Elsevier, vol. 83(3), pages 317-324, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:rwe111:v:6:y:2015:i:1:p:20-35. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://rwe.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.