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Export-Supporting FDI

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  • Krautheim, Sebastian

Abstract

Wholesale and retail trade affiliates owned by parent firms in manufacturing account for a considerable fraction of overall affiliate sales. Although quantitatively important, this Export-Supporting FDI (ESFDI) activity has received little attention in the literature. This paper includes ESFDI into a model of trade and horizontal FDI with heterogeneous firms. ESFDI is characterized by export-supporting distribution and service activities in the foreign market while production remains in the home country. This introduces some complementarity between trade and FDI. In the model falling trade costs lead to an increase in both overall trade and overall FDI activity. This provides a possible explanation for the simultaneous rise in trade and FDI in the data. An empirical analysis using German firm level FDI data confirms the quantitative importance of ESFDI. The data also support crucial implications of the theoretical model. Parents choosing ESFDI are smaller than firms choosing to produce in the foreign market. And the importance of ESFDI relative to horizontal FDI is strongest when variable trade costs are low.

Suggested Citation

  • Krautheim, Sebastian, 2009. "Export-Supporting FDI," Discussion Paper Series 1: Economic Studies 2009,20, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:200920
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    Cited by:

    1. Spies, Julia, 2010. "Network and border effects: Where do foreign multinationals locate in Germany?," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 20-32, January.
    2. Jörn Kleinert & Farid Toubal, 2013. "Production versus distribution-oriented FDI," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 423-442, September.
    3. Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
    4. Luigi Bonatti & Andrea Fracasso, 2012. "A Germans� dilemma: save the euro or preserve their socio-economic model," Department of Economics Working Papers 1207, Department of Economics, University of Trento, Italia.
    5. Zhan Qu & Horst Raff & Nicolas Schmitt, 2015. "Inventory Control and Intermediation in Global Supply Chains," CESifo Working Paper Series 5269, CESifo.
    6. Bruce A. Blonigen & Donghyun Lee, 2016. "Heterogeneous Frictional Costs Across Industries in Cross-border Mergers and Acquisitions," NBER Working Papers 22546, National Bureau of Economic Research, Inc.
    7. Federico Carril-Caccia & Juliette Milgram Baleix, 2023. "Impact of Environmental Regulation on Cross-Border MAs in high- and low-polluting sectors," ThE Papers 23/04, Department of Economic Theory and Economic History of the University of Granada..
    8. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, September.
    9. Benjamin Bridgman, 2017. "Market Entry Mode: Evidence From The Golden Age Of Hollywood," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 778-793, April.
    10. Engel, Dirk & Procher, Vivien, 2009. "Export, FDI and Productivity – Evidence for French Firms," Ruhr Economic Papers 111, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Federico Carril‐Caccia & Elena Pavlova, 2020. "Mergers and acquisitions & trade: A global value chain analysis," The World Economy, Wiley Blackwell, vol. 43(3), pages 586-614, March.
    12. V. Vicard, 2015. "Profit shifting through transfer pricing: evidence from French firm level trade data," Working papers 555, Banque de France.
    13. Blonigen, Bruce A. & Cristea, Anca & Lee, Donghyun, 2020. "Evidence for the effect of monitoring costs on foreign direct investment," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 601-617.
    14. Dirk Engel & Vivien Procher, 2013. "Home Firm Performance After Foreign Investments and Divestitures," The World Economy, Wiley Blackwell, vol. 36(12), pages 1478-1493, December.
    15. Alguacil, Maite & Martí, Josep & Orts, Vicente, 2017. "Firm heterogeneity and the market scope of European multinational activity," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 645-659.
    16. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
    17. Ren, Xiaoyan & Yang, Shuili, 2020. "Empirical study on location choice of Chinese OFDI," China Economic Review, Elsevier, vol. 61(C).
    18. Schwab, Jakob & Ortseifer, Christina, 2015. "Reaping the Gains: Specialization and Capital Flows," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113194, Verein für Socialpolitik / German Economic Association.
    19. Jean‐Charles Bricongne & Sebastian Franco Bedoya & Margarita Lopez Forero, 2023. "The proximity‐concentration trade‐off with multi‐product firms: Are exports and FDI complements or substitutes?," The World Economy, Wiley Blackwell, vol. 46(5), pages 1264-1289, May.
    20. Andre Jungmittag, 2019. "Service trade restrictiveness and internationalisation of retail trade," International Economics and Economic Policy, Springer, vol. 16(2), pages 293-333, April.
    21. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, vol. 19(4), pages 634-648, September.
    22. Ahn, JaeBin & Park, Jee-Hyeong, 2022. "Identifying FDI types: Watch what they do, not what they say or look like," Economics Letters, Elsevier, vol. 213(C).
    23. Martin Coiteux & Patrick Rizzetto & Lena Suchanek & Jane Voll, 2014. "Why Do Canadian Firms Invest and Operate Abroad? Implications for Canadian Exports," Discussion Papers 14-7, Bank of Canada.
    24. Federico Carril-Caccia, 2020. "Will the Future EU-UK Free Trade Agreement Affect Foreign Direct Investment?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(4), pages 266-270, July.

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    More about this item

    Keywords

    Exports; horizontal FDI; multinational companies; wholesale trade;
    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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