Scandinavian Working Papers in Economics
Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics
No 09-13: Switching between Domestic Market Activity, Export and FDI
Sanne Hiller () and Erdal Yalcin ()
Additional contact information
Sanne Hiller: Department of Economics, Aarhus School of Business, Postal: FRICHSHUSET , Hermodsvej 22, DK 8230 Aabyhoej, Denmark
Erdal Yalcin: Eberhard Karls University, Postal: Nauklerstr. 47, D-72074, Germany
Abstract: Do rms maintain their chosen market serving mode over time if they are confronted with dynamic processes such as uncertain productivity? What are the determinants for switching between market serving modes over time? Within a partial equilib- rium model which combines the proximity-concentration trade-o with a stochastic productivity evolution, we analyze the transition dynamics between domestic market serving, exporting and FDI. We nd that a stochastic productivity development gen- erates hysteresis, and thereby con rm a general real option result. Market serving mode switching is driven by country speci c competition, irreversible xed costs, pro- ductivity growth and volatility. Higher xed costs and volatility increase the likeliness of serving mode continuity whereas a higher degree of competition and productivity growth raise the probability of serving mode switching.
Keywords: Export; FDI; Market Serving Strategy; Real Option
49 pages, August 1, 2009
Questions (including download problems) about the papers in this series should be directed to Helle Vinbaek Stenholt ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:aareco:2009_013This page generated on 2024-09-13 22:14:08.