Heterogeneity and the FDI versus Export Decision of Japanese Manufacturers
NBER Working Paper No. 10052
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.
Published: Head, Keith and John Ries. "Heterogeneity And The FDI Versus Export Decision Of Japanese Manufacturers," Journal of the Japanese and International Economies, 2003, v17(4,Dec), 448-467.