miyagiwa_07

Emory University
Department of Economics
Working Papers

Title:

Export, foreign direct investment, and joint ventures: Learning the rival’s costs through propinquity

Number: 07-10

Author:
Anthony Creane and Kaz Miyagiwa

Issue Date: July 2007

Abstract: We examine the role of cost uncertainty in a firm’s choice between exporting and foreign investment in oligopolistic industry. We consider both foreign direct investment and an international joint venture, and allow country-specific and firm-specific cost uncertainty. Unlike exporting, either form of foreign investment exposes home and foreign firms to common country-specific cost shocks, implying a better knowledge of each other’s country-specific shocks. Further, a joint venture allows the firms to learn each other’s firm-specific cost. A firm’s plant location decision depends on the interaction of these two effects, which depend on the type of competition and the substitutability of the firm’s products.

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Title:	Export, foreign direct investment, and joint ventures: Learning the rival’s costs through propinquity
Number:	07-10
Author:	Anthony Creane and Kaz Miyagiwa
Issue Date:	July 2007
Abstract:	We examine the role of cost uncertainty in a firm’s choice between exporting and foreign investment in oligopolistic industry. We consider both foreign direct investment and an international joint venture, and allow country-specific and firm-specific cost uncertainty. Unlike exporting, either form of foreign investment exposes home and foreign firms to common country-specific cost shocks, implying a better knowledge of each other’s country-specific shocks. Further, a joint venture allows the firms to learn each other’s firm-specific cost. A firm’s plant location decision depends on the interaction of these two effects, which depend on the type of competition and the substitutability of the firm’s products.