Export versus FDI in services

WPIEA2010290 Image
Price:  $18.00

Author/Editor: Ila Patnaik, Ajay Shah, Rudrani Bhattacharya
Release Date: © December, 2010
ISBN : 978-1-45521-171-5
Stock #: WPIEA2010290
English
Stock Status: On back-order

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Description

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.

Taxonomy

Balance of trade , Exports , International trade




More publications in this series: Working Papers


More publications by: Ila Patnaik ; Ajay Shah ; Rudrani Bhattacharya