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Implications of Financial Development of the South for Trade and Foreign Direct Investment from the North
Author(s) -
Liu Qing,
Qiu Larry D.
Publication year - 2014
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12083
Subject(s) - foreign direct investment , competition (biology) , economics , international economics , product (mathematics) , international trade , investment (military) , monetary economics , business , macroeconomics , biology , ecology , geometry , mathematics , politics , political science , law
Using a N orth– S outh model of heterogeneous firms, the paper investigates the effects of the financial development of the S outh on the choice of international entry mode (export vs foreign direct investment [ FDI ]) of N orthern firms. Such development facilitates the entry of local firms and thus intensifies product market competition. As a result, the intensive margins, extensive margins and total sales from export or FDI of N orthern firms are all reduced. The paper provides conditions that determine whether export or FDI is affected more significantly. The results generate empirically testable hypotheses.