The ladder of internationalization modes: evidence from European firms

Original Paper

Abstract

How do firms enter international markets? To answer this question, this paper uses a unique multi-country firm-level dataset which, besides direct exporting and FDI, provides explicit information on a number of internationalization modes: indirect exporting, outsourced manufacturing and service FDI. We present a theoretical framework in which modes requiring higher and higher commitment have progressively higher fixed and lower marginal costs. By estimating multinomial and ordered logit models, we present evidence in line with such a sorting framework with respect to TFP and innovativeness. We identify three ’clusters’ of modes: indirect exporters are similar to non-exporters, direct exporters and outsourced manufacturers constitute a second cluster while service and manufacturing FDI are the most demanding internationalization modes.

Keywords

Firm heterogeneity Self-selection Sorting Export FDI Internationalization mode Ordered logit 

JEL Classification

F14 F23 

Notes

Acknowledgements

This paper was produced within European Firms in a Global Economy: Internal policies for external competitiveness (EFIGE), a collaborative project funded by the European Commission’s Seventh Framework Programme (Contract Number 225551). The authors also gratefully acknowledge the support of the ‘Firms, Strategy and Performance’ Lendület grant and the Bolyai grant of the Hungarian Academy of Sciences. We are grateful to Miklos Koren, Cecilia Hornok and seminar participants at EEA, ETSG, DEGIT, MKE, Bocconi University, WIIW and IfW Kiel for comments and suggestions. Any errors or omissions remain the authors’ sole responsibility.

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Copyright information

© Kiel Institute 2018

Authors and Affiliations

  1. 1.Central European UniversityBudapestHungary
  2. 2.Centre for Economic and Regional Studies of the Hungarian Academy of SciencesBudapestHungary
  3. 3.CEPRLondonUK

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