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Type: Journal article
Title: Foreign direct investment as a signal
Author: Koska, O.
Ngo, V.
Staehler, F.
Citation: Review of International Economics, 2018; 26(1):60-83
Publisher: Wiley
Issue Date: 2018
ISSN: 0965-7576
Statement of
Onur A. Koska, Ngo Van Long, Frank Stähler
Abstract: 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.
Rights: © 2017 John Wiley & Sons Ltd
DOI: 10.1111/roie.12303
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