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Exports versus FDI: do firms use FDI as a mechanism to smooth demand volatility?/ created by Yang-ming Chang; Philip G. Gayle

By: Contributor(s): Material type: TextTextSeries: Review of world economics ; Volume 145, number 3Heidelberg: Springer, 2009Content type:
  • text
Media type:
  • unmediated
Carrier type:
  • volume
ISSN:
  • 16102878
Subject(s): LOC classification:
  • HF135 REV
Online resources: Abstract: In this paper, we first develop a simple two-period model of oligopoly to show that, under demand uncertainty, whether a firm chooses to serve foreign markets by exports or via foreign direct investment (FDI) may depend on demand volatility along with other well-known determinants such as size of market demand and trade costs. Although fast transport such as air shipment is an option for exporting firms to smooth volatile demand in foreign markets, market volatility may systematically trigger the firms to undertake FDI. We then use a rich panel of US firms’ sales to 56 countries between 1999 and 2004 to confront this theoretical prediction and show strong evidence in support of the prediction
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Holdings
Item type Current library Call number Vol info Copy number Status Notes Date due Barcode
Journal Article Journal Article Main Library - Special Collections HF135 REV (Browse shelf(Opens below)) Vol. 145, no.3 (pages 447-468) SP3244 Not for loan For in house use only

In this paper, we first develop a simple two-period model of oligopoly to show that, under demand uncertainty, whether a firm chooses to serve foreign markets by exports or via foreign direct investment (FDI) may depend on demand volatility along with other well-known determinants such as size of market demand and trade costs. Although fast transport such as air shipment is an option for exporting firms to smooth volatile demand in foreign markets, market volatility may systematically trigger the firms to undertake FDI. We then use a rich panel of US firms’ sales to 56 countries between 1999 and 2004 to confront this theoretical prediction and show strong evidence in support of the prediction

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