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    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of International Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Economics, 99, 2016 DOI: 10.1016/j.jinteco.2015.12.004

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The internationalization process of firms: from exports to FDI

Research output: Contribution to journalJournal article

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<mark>Journal publication date</mark>03/2016
<mark>Journal</mark>Journal of International Economics
Volume99
Number of pages15
Pages (from-to)16-30
Publication statusPublished
Early online date23/12/15
Original languageEnglish

Abstract

We examine how uncertainty affects firms' internationalization choices. We begin by unveiling a new empirical regularity: using a unique dataset that allows us to study the dynamics of firms' exports and foreign direct investments (FDI) in individual destinations, we show that most firms serve a market via exports before investing there. To rationalize this pattern, we describe a model in which firms are uncertain about their profitability in a foreign market and may experiment via exports before engaging in FDI. In line with this idea, we show that the probability that a firm starts investing in a foreign country increases with its export experience in that country. In more uncertain destinations, firms delay FDI entry, experimenting longer with exports before establishing foreign affiliates.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of International Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Economics, 99, 2016 DOI: 10.1016/j.jinteco.2015.12.004