Export versus FDI in services

 
Author/Editor: Bhattacharya, Rudrani ; Patnaik, Ila ; Shah, Ajay
 
Publication Date: December 01, 2010
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: In the literature on exports and investment, most productive firms are seen to invest abroad. In the Helpman et al. (2004) model, costs of transportation play a critical role in the decision about whether to serve foreign customers by exporting, or by producing abroad. We consider the case of tradable services, where the marginal cost of transport is near zero. We argue that in the purchase of services, buyers face uncertainty about product quality, especially when production is located far away. Firm optimisation then leads less productive firms to self-select themselves for FDI. We test this prediction with data from the Indian software industry and find support for it.
 
Series: Working Paper No. 10/290
Subject(s): Economic models | Exports | Foreign investment | India | Productivity | Services sector | Software

Author's Keyword(s): FDI | Exports | Productivity | Heterogeneous firms | Software | Uncertainty
 
English
Publication Date: December 01, 2010
Format: Paper
Stock No: WPIEA2010290 Pages: 24
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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