IDEAS home Printed from https://ideas.repec.org/p/ags/pugtwp/332957.html
   My bibliography  Save this paper

Export, Horizontal FDI, or Export Platform FDI with Heterogeneous Firms

Author

Listed:
  • Oyamada, Kazuhiko

Abstract

Besides the firm's strategic choice between exporting (motivated by lower fixed costs) or horizontal FDI (motivated by lower trade costs) to serve a foreign market, there is another choice driven by lower factor costs. Export-platform FDI is characterized by investing and producing in a foreign country, while the final output is sold not in the home- or host-country markets but exported to third markets. This paper presents a numerical model that explains the decision of heterogeneous firms, which differ in productivity levels, to serve foreign markets either through exporting from the home country, local subsidiary sales (horizontal FDI), or exporting from a host country (export-platform FDI), in the three-country framework. Experimental simulations with the model clearly show that export-platform productions complement horizontal affiliate productions while direct exporting substitutes. In addition, the firms' operational strategy whether to choose the horizontal FDI responds quite sensitive to the changes in factor prices, and affects the other choices of the substitutable direct exporting and the complementary export-platform FDI.

Suggested Citation

  • Oyamada, Kazuhiko, 2018. "Export, Horizontal FDI, or Export Platform FDI with Heterogeneous Firms," Conference papers 332957, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332957
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/332957/files/9076.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-544, September.
    2. Zhai, Fan, 2008. "Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 575-604.
    3. 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.
    4. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2021. "Export-Platform Foreign Direct Investment," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 6, pages 111-130, World Scientific Publishing Co. Pte. Ltd..
    5. James R. MARKUSEN, 2021. "Multinationals, Multi-Plant Economies, And The Gains From Trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 1, pages 3-24, World Scientific Publishing Co. Pte. Ltd..
    6. 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.
    7. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages 134-161, February.
    8. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
    9. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    10. Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-783, November.
    11. Oyamada, Kazuhiko, 2017. "Production patterns of multinational enterprises: the knowledge-capital model revisited," IDE Discussion Papers 674, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    12. Zhang, Kevin Honglin & Markusen, James R., 1999. "Vertical multinationals and host-country characteristics," Journal of Development Economics, Elsevier, vol. 59(2), pages 233-252, August.
    13. Tadashi Ito, 2013. "Export-Platform Foreign Direct Investment: Theory and Evidence," The World Economy, Wiley Blackwell, vol. 36(5), pages 563-581, May.
    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. María C. Latorre, 2009. "The economic analysis of multinationals and foreign direct investment: a review," Hacienda Pública Española / Review of Public Economics, IEF, vol. 191(4), pages 97-126, December.
    2. Chen, Maggie Xiaoyang & Moore, Michael O., 2010. "Location decision of heterogeneous multinational firms," Journal of International Economics, Elsevier, vol. 80(2), pages 188-199, March.
    3. Helen Naughton & Pehr-Johan Norbäck & Ayça Tekin-Koru, 2016. "Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World," The World Economy, Wiley Blackwell, vol. 39(12), pages 2046-2073, December.
    4. Richard Baldwin & Toshihiro Okubo, 2014. "Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates," The World Economy, Wiley Blackwell, vol. 37(8), pages 1051-1080, August.
    5. Uchida, Yoko & Oyamada, Kazuhiko, 2015. "Theory and empirics of Markusen type multinationals," IDE Discussion Papers 516, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. Naoto Jinji & Xingyuan Zhang & Shoji Haruna, 2022. "Deep Integration, Global Firms, and Technology Spillovers," Advances in Japanese Business and Economics, Springer, number 978-981-16-5210-3, July.
    7. Nicolo' Tamberi, 2020. "Export-platform FDI and Brexit Uncertainty," Working Paper Series 0320, Department of Economics, University of Sussex Business School.
    8. Okubo, Toshihiro & Watabe, Yuta, 2023. "Networked FDI and third-country intra-firm trade," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 591-606.
    9. Sotiris Blanas & Adnan Seric, 2018. "Determinants of intra‐firm trade: Evidence from foreign affiliates in Sub‐Saharan Africa," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 917-956, September.
    10. Grossman, Gene M. & Helpman, Elhanan & Szeidl, Adam, 2006. "Optimal integration strategies for the multinational firm," Journal of International Economics, Elsevier, vol. 70(1), pages 216-238, September.
    11. Stiebale, Joel, 2016. "Cross-border M&As and innovative activity of acquiring and target firms," Journal of International Economics, Elsevier, vol. 99(C), pages 1-15.
    12. Tekin-Koru, Ayca & Waldkirch, Andreas, 2007. "North American Integration and the Location of Foreign Direct Investment," MPRA Paper 5212, University Library of Munich, Germany.
    13. Erdal Yalcin & Davide Sala, 2014. "Uncertain Productivity Growth and the Choice between FDI and Export," Review of International Economics, Wiley Blackwell, vol. 22(1), pages 189-208, February.
    14. Pol Antràs & Esteban Rossi-Hansberg, 2009. "Organizations and Trade," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 43-64, May.
    15. Erdey, László, 2004. "A működőtőke-áramlás a telephelyválasztás elméletének tükrében [The flow of operating capital in the light of the theory of location choice]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 472-494.
    16. Fulvio Castellacci, 2014. "Service innovation and the proximity-concentration trade-off model of trade and FDI," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 92-108, January.
    17. Edward Manderson & Richard Kneller, 2012. "Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 317-352, March.
    18. Sotiris Blanas & Adnan Seric, 2017. "Determinants of Intra-Firm Trade," Working Papers 178118175, Lancaster University Management School, Economics Department.
    19. Ayça Tekin‐Koru & Andreas Waldkirch, 2010. "North–South Integration and the Location of Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 696-713, September.
    20. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.

    More about this item

    Keywords

    International Relations/Trade;

    Statistics

    Access and download statistics

    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:ags:pugtwp:332957. 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: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/gtpurus.html .

    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.