Uncertain Productivity Growth and the Choice between FDI and Export |
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Authors: | Erdal Yalcin Davide Sala |
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Affiliation: | 1. +49‐89‐9224‐1420;2. Ifo Institute for Economic Research, , 81679 Munich, Germany;3. University of Southern Denmark, , 5230 Odense, Denmark |
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Abstract: | While determinants of FDI patterns have received widespread attention, the timing of their surge remains largely unexplained. According to the proximity–concentration trade‐off argument, a surge in FDI in times of decaying international transportation costs seemingly represents a paradox. Besides transportation costs, other factors have contextually changed: in particular, the uncertainty that firms bear has increased. Enriching the classical choice problem of a multinational firm with insights from the literature on investment under uncertainty, we illustrate how different types of uncertainty determine the timing and optimal entry mode (i.e. FDI or export) of a multinational enterprise into a new market. |
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