A Structural Model of Export Versus Affiliates Production

27 Pages Posted: 7 Feb 2005

See all articles by Joern Kleinert

Joern Kleinert

University of Tuebingen - Department of Economics

Farid Toubal

Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management; National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: December 20, 2004

Abstract

We derive and estimate an econometric model of export versus foreign production using firm-level data on foreign activities of German multinationals. Proximity-concentration theory which we derive our model from shows that firms face a trade-off between concentrating their production at home to save on plant set-up costs and producing abroad to save on distance costs. Firms facing this trade-off choose between export and foreign production according to their expected profits. The model is brought to the data using a pooled-probit analysis over the period 1996-1999. We find support for the proximity-concentration trade-off. In particular, market size and distance affect positively the probability of foreign production whereas fixed costs have a negative impact on the decision to engage in FDI.

Keywords: Multinational Firm, Trade, Discrete Choice

JEL Classification: F23, F12, C35

Suggested Citation

Kleinert, Joern and Toubal, Farid, A Structural Model of Export Versus Affiliates Production (December 20, 2004). Available at SSRN: https://ssrn.com/abstract=663321 or http://dx.doi.org/10.2139/ssrn.663321

Joern Kleinert (Contact Author)

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

Farid Toubal

Ecole Normale Superieure de Cachan (ENS) - Departement of Economics ans Management ( email )

France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

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