Exporting versus Foreign Direct Investment: Learning Through Propinquity

32 Pages Posted: 18 May 2006 Last revised: 26 May 2012

See all articles by Anthony Creane

Anthony Creane

University of Kentucky

Kaz Miyagiwa

Emory University - Department of Economics; Osaka University - Institute of Social and Economic Research (ISER); Florida International University (FIU) - Department of Economics

Date Written: May 2012

Abstract

This paper considers the role learning has on foreign direct investments (FDI) when there is both cost and demand uncertainty. FDI has an obvious benefit as it gains the firm information about local demand and costs. However, FDI has a second effect: it correlates the firm's cost with the local rival's cost, which proves harmful in both price and quantity competition. Thus, the choice depends on whether the firm faces relatively more demand or cost uncertainty, to what extent inputs are locally procured and how differentiated the rival's product is.

Keywords: information, FDI, joint ventures

JEL Classification: D8, F1, F2

Suggested Citation

Creane, Anthony and Miyagiwa, Kaz, Exporting versus Foreign Direct Investment: Learning Through Propinquity (May 2012). Available at SSRN: https://ssrn.com/abstract=903100 or http://dx.doi.org/10.2139/ssrn.903100

Anthony Creane (Contact Author)

University of Kentucky ( email )

Lexington, KY 40506
United States

Kaz Miyagiwa

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki Osaka 567-0047
Japan

Florida International University (FIU) - Department of Economics ( email )

Miami, FL 33199
United States

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