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| Arijit Mukherjee |
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| ''A note on firm-productivity and foreign direct investment'' |
| ( 2010, Vol. 30 No.3 ) |
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| Assuming linear demand and unit transportation cost, Head and Ries (2003, 'Heterogeneity and the FDI versus export decision of Japanese manufacturers', Journal of the Japanese and International Economies) conclude that the theoretical prediction of Helpman et al. (2004, 'Export versus FDI with heterogeneous firms', The American Economic Review), which show that the more productive firms undertake FDI and the less productive firms export, does not depend on their assumptions of CES preferences and iceberg transportation costs. Considering iceberg transportation costs in an otherwise similar setup of Head and Ries (2003), we show that the theoretical prediction of Helpman et al. (2004) may not hold. Hence, CES preference in Helpman et al. (2004) is important for their theoretical results. |
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| Keywords: Firm-productivity; Foreign direct investment; Iceberg cost |
JEL: F1 - Trade: General
F2 - International Factor Movements and International Business: General |
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| Manuscript Received : May 16 2010 | | Manuscript Accepted : Aug 12 2010 |
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