Foreign direct investment as a signal

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Date

2018-02-01

Author

Koska, Onur A.
Long, Ngo Van
Staehler, Frank

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This paper models oligopolistic competition among potential multinational firms in an environment of firm heterogeneity, incomplete information on costs, and strategic interactions. We show that foreign direct investment is more likely if it can serve as a signal of productivity in an environment of incomplete information as firms would like to avoid sending a low productivity signal. Our model shows that this effect is strong enough such that foreign direct investment can be an optimal foreign entry mode even if trade costs are zero.

Subject Keywords

Heterogeneous firms, International-trade, Productivity, FDI, Information, Strategies, Decision, Export

URI

https://hdl.handle.net/11511/67154

Journal

REVIEW OF INTERNATIONAL ECONOMICS

DOI

https://doi.org/10.1111/roie.12303

Collections

Department of Economics, Article

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Citation Formats

O. A. Koska, N. V. Long, and F. Staehler, “Foreign direct investment as a signal,” REVIEW OF INTERNATIONAL ECONOMICS, pp. 60–83, 2018, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/67154.