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Switching between Domestic Market Activity, Export and FDI

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  • Wp 09-13

    Final published version, 358 KB, PDF document

Do firms 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 equilibrium model which combines the proximity-concentration trade-off with a stochastic productivity evolution, we analyze the transition dynamics between domestic market serving, exporting and FDI. We find that a stochastic productivity development generates hysteresis, and thereby confirm a general real option result. Market serving mode switching is driven by country speci?c competition, irreversible fixed costs, productivity growth and volatility. Higher fixed 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.
Original languageEnglish
Place of publicationAarhus
PublisherAarhus School of Business, Aarhus University, Department of Economics
Number of pages49
ISBN (Print)9788778824004
ISBN (Electronic)9788778824028
Publication statusPublished - 2009

    Research areas

  • Export, FDI, Market Serving Strategy, Real Option

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