Exports, Horizontal FDI and Export Hubs

Abstract:     
International operating firms often follow complex market supply strategies, ranging from Exports and Foreign Direct Investments (FDI) to regional Export Hubs. Explaining the driving forces behind multinational setups and their influence on the agglomeration-core pattern has become an emerging question pressuring economists to expand existing models.

This paper builds on the fundaments of Brainard (1997), who introduces a multi-production strategy into the classic NEG model and suggests that multinational activities either evolve into Exports or horizontal FDI. By integrating Melitz’s (2003) concept of firm heterogeneity, Helpman et. al. (2006) can already explain the co-existence of Exports and horizontal FDI on the country-level. However, every firm follows a exclusive strategy, using only one distinct supply option to serve a foreign market.

In this paper I extend the work of Brainard (1997) to a three country world. By taking account for the relative distance between the countries, this model leads to three distinct supply scenarios. It explains the simultaneous existence of Exports and horizontal FDI on the firm-level, and furthermore introduces the supply strategy of an Export Hub.

Number of Pages in PDF File: 21

Keywords: Export Platform, Foreign Direct Investment, International Trade Theory, Coexistence

JEL Classification: F12, F15, F23, L62

working papers series