Working Paper: NBER ID: w10052
Authors: Keith Head; John Ries
Abstract: We investigate whether productivity differences explain why some manufacturers sell only to the domestic market while others serve foreign markets through exports and/or FDI. When overseas production offers no cost advantages, our model predicts that investors should be more productive than exporters. An extension allowing for low-cost foreign production can reverse this prediction. Data for 1070 large Japanese firms reveal that firms that invest abroad and export are more productive than firms that just export. Among overseas investors, more productive firms span a wider range of host-country income levels.
Keywords: No keywords provided
JEL Codes: F120; F230
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher productivity (O49) | Greater likelihood of engaging in FDI (F23) |
| Firms investing abroad (FDI) (F23) | More productive than those that only export (F10) |
| Productivity differences (O49) | Heterogeneity in market entry strategies (F12) |
| Most productive firms (D21) | Engage in FDI when foreign production offers no cost advantages (F23) |
| Less productive firms (D22) | Limit themselves to exporting when foreign production offers no cost advantages (F14) |
| Ordering of firms by productivity can be reversed (D21) | If the foreign country is a low-cost production site (F23) |