FDI and trade for foreign market entry: theory and evidence from Estonia
This article investigates firms' strategies for international expansion, foreign direct investment (FDI) and exports. We use the framework of Helpman et al. (2004) to illustrate how firm-level productivity differences influence these strategies. We extend this model with multifactor production...
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2025-01-01
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| Series: | Baltic Journal of Economics |
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| Online Access: | https://www.tandfonline.com/doi/10.1080/1406099X.2025.2463863 |
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| author | Per Botolf Maurseth Jaan Masso Rasmus Bøgh Holmen |
| author_facet | Per Botolf Maurseth Jaan Masso Rasmus Bøgh Holmen |
| author_sort | Per Botolf Maurseth |
| collection | DOAJ |
| description | This article investigates firms' strategies for international expansion, foreign direct investment (FDI) and exports. We use the framework of Helpman et al. (2004) to illustrate how firm-level productivity differences influence these strategies. We extend this model with multifactor production processes, encompassing both trade in goods and services. The model predicts that trade and FDI can be both substitutes and complements. Our empirical analysis uses detailed Estonian firm-market-level data to explore the model's predictions by estimating the intensive and extensive trade margins and internationalization choices of firms between trade and FDI. The empirical findings indicate that selection into exporting is determined by past productivity. There is evidence consistent with spillover effects in goods exports from other exporters to the same destination. Outward FDI complements both goods and services exports. Our findings underscore the complexity of firms' choices for international expansion, urging a nuanced dichotomy between FDI and exports. |
| format | Article |
| id | doaj-art-8c00a95650b74b73b53955d785950c7c |
| institution | OA Journals |
| issn | 1406-099X 2334-4385 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Baltic Journal of Economics |
| spelling | doaj-art-8c00a95650b74b73b53955d785950c7c2025-08-20T02:30:04ZengTaylor & Francis GroupBaltic Journal of Economics1406-099X2334-43852025-01-01251397110.1080/1406099X.2025.2463863FDI and trade for foreign market entry: theory and evidence from EstoniaPer Botolf Maurseth0Jaan Masso1Rasmus Bøgh Holmen2BI – Norwegian Business School, Oslo, NorwaySchool of Economics and Business Administration, University of Tartu, Tartu, EstoniaCentre for Applied Research, NHH Norwegian School of Economics, Bergen, NorwayThis article investigates firms' strategies for international expansion, foreign direct investment (FDI) and exports. We use the framework of Helpman et al. (2004) to illustrate how firm-level productivity differences influence these strategies. We extend this model with multifactor production processes, encompassing both trade in goods and services. The model predicts that trade and FDI can be both substitutes and complements. Our empirical analysis uses detailed Estonian firm-market-level data to explore the model's predictions by estimating the intensive and extensive trade margins and internationalization choices of firms between trade and FDI. The empirical findings indicate that selection into exporting is determined by past productivity. There is evidence consistent with spillover effects in goods exports from other exporters to the same destination. Outward FDI complements both goods and services exports. Our findings underscore the complexity of firms' choices for international expansion, urging a nuanced dichotomy between FDI and exports.https://www.tandfonline.com/doi/10.1080/1406099X.2025.2463863Exportingoutward foreign direct investmentsvertical and horizontal FDItrade modelsF14F23 |
| spellingShingle | Per Botolf Maurseth Jaan Masso Rasmus Bøgh Holmen FDI and trade for foreign market entry: theory and evidence from Estonia Baltic Journal of Economics Exporting outward foreign direct investments vertical and horizontal FDI trade models F14 F23 |
| title | FDI and trade for foreign market entry: theory and evidence from Estonia |
| title_full | FDI and trade for foreign market entry: theory and evidence from Estonia |
| title_fullStr | FDI and trade for foreign market entry: theory and evidence from Estonia |
| title_full_unstemmed | FDI and trade for foreign market entry: theory and evidence from Estonia |
| title_short | FDI and trade for foreign market entry: theory and evidence from Estonia |
| title_sort | fdi and trade for foreign market entry theory and evidence from estonia |
| topic | Exporting outward foreign direct investments vertical and horizontal FDI trade models F14 F23 |
| url | https://www.tandfonline.com/doi/10.1080/1406099X.2025.2463863 |
| work_keys_str_mv | AT perbotolfmaurseth fdiandtradeforforeignmarketentrytheoryandevidencefromestonia AT jaanmasso fdiandtradeforforeignmarketentrytheoryandevidencefromestonia AT rasmusbøghholmen fdiandtradeforforeignmarketentrytheoryandevidencefromestonia |