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FDI versus Exports: Multiple Host Countries and Empirical Evidence
Author(s) -
Oberhofer Harald,
Pfaffermayr Michael
Publication year - 2012
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2011.01403.x
Subject(s) - foreign direct investment , bivariate analysis , multivariate probit model , economics , probit model , international economics , probit , empirical evidence , empirical research , econometrics , international trade , business , macroeconomics , mathematics , statistics , philosophy , epistemology
There are two main options for companies to serve foreign markets: exports and foreign direct investment (FDI). Based on the Helpman et al. (2004) model for multiple host countries, this paper derives a clear theoretical prediction for the decision between both strategies. A bivariate probit model is estimated using a large data set of European companies to analyse the probability of using one or the other strategy. The empirical evidence indicates that more productive firms less (more) probably use the export (FDI) strategy to serve foreign markets. Moreover, a considerable number of companies use a combination of both the strategies to serve foreign markets, which is in line with a multiple‐country model.