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Service innovation and the proximity-concentration trade-off model of trade and FDI

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  • Fulvio, Castellacci

Abstract

This paper introduces service innovation in the proximity-concentration trade-off model of trade and FDI (Helpman, Melitz and Yeaple, 2004). The idea is that innovation will have two main effects on service firms’ choice between exports and FDI. First, innovative firms will on average have higher productivity levels than non-innovative enterprises. Secondly, innovators will have to pay a higher relational distance cost for undertaking export activities, and they will therefore prefer to avoid (or reduce) these costs by choosing a FDI strategy instead. We test the empirical relevance of this idea on a new survey dataset for a representative sample of firms in all business service sectors in Norway. The results show that firms are more likely to choose FDI rather than export the greater their productivity level and the higher the relational distance costs they face.

Suggested Citation

  • Fulvio, Castellacci, 2011. "Service innovation and the proximity-concentration trade-off model of trade and FDI," MPRA Paper 31002, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:31002
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    References listed on IDEAS

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    Cited by:

    1. Andre Jungmittag, 2019. "Service trade restrictiveness and internationalisation of retail trade," International Economics and Economic Policy, Springer, vol. 16(2), pages 293-333, April.
    2. Fulvio Castellacci, 2014. "Service Firms Heterogeneity, International Collaborations and Export Participation," Journal of Industry, Competition and Trade, Springer, vol. 14(2), pages 259-285, June.
    3. Witell, Lars & Snyder, Hannah & Gustafsson, Anders & Fombelle, Paul & Kristensson, Per, 2016. "Defining service innovation: A review and synthesis," Journal of Business Research, Elsevier, vol. 69(8), pages 2863-2872.
    4. Francisco J. Santos-Arteaga & Celia Torrecillas & Madjid Tavana, 2019. "Dynamic effects of learning on the innovative outputs and productivity in Spanish multinational enterprises," The Journal of Technology Transfer, Springer, vol. 44(1), pages 97-131, February.

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    More about this item

    Keywords

    Service sectors; innovation; export; FDI; firm heterogeneity; survey data;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F10 - International Economics - - Trade - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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