The internationalization process of firms: from exports to FDI

Conconi, Paola and Sapir, André and Zanardi, Maurizio (2013) The internationalization process of firms: from exports to FDI. Discussion Paper. Centre for Economic Policy Research.

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Abstract

This paper shows that uncertainty can lead firms to follow a gradual internationalization process. We describe a model in which firms are uncertain about their ability to earn profits in a foreign market and must decide whether or not to serve it, and whether to do so through exports or foreign affiliate sales. We show that a firm may first test the foreign market via exports, before engaging in foreign direct investment (FDI). To assess the evidence, we exploit a unique dataset of firm-level exports and FDI in individual destination countries, covering all Belgian companies over the 1998-2008 period. We show that a firm’s FDI entry in a foreign market is almost always preceded by its export entry. More uncertain foreign market conditions lead new exporters to delay FDI entry decisions. Our analysis suggests that exports and FDI, although substitutes from a static perspective, may be complements over time, since the knowledge acquired through export experimentation can lead firms to start investing abroad.

Item Type: Monograph (Discussion Paper)
Departments: Lancaster University Management School > Economics
ID Code: 64763
Deposited By: ep_importer_pure
Deposited On: 24 May 2013 08:18
Refereed?: No
Published?: Published
Last Modified: 10 Jun 2019 23:56
URI: https://eprints.lancs.ac.uk/id/eprint/64763

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