Foreign direct investment as a signal

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Koska O. A., Ngo Van Long N. V. L., Staehler F.

REVIEW OF INTERNATIONAL ECONOMICS, cilt.26, sa.1, ss.60-83, 2018 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 26 Sayı: 1
  • Basım Tarihi: 2018
  • Doi Numarası: 10.1111/roie.12303
  • Dergi Adı: REVIEW OF INTERNATIONAL ECONOMICS
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.60-83
  • Orta Doğu Teknik Üniversitesi Adresli: Hayır

Özet

This paper models oligopolistic competition among potential multinational firms in an environment of firm heterogeneity, incomplete information on costs, and strategic interactions. We show that foreign direct investment is more likely if it can serve as a signal of productivity in an environment of incomplete information as firms would like to avoid sending a low productivity signal. Our model shows that this effect is strong enough such that foreign direct investment can be an optimal foreign entry mode even if trade costs are zero.