Uncertain Productivity Growth
3 THE OPTIMAL MARKET ENTRY MODE
3 The Optimal Market Entry Mode
In order to elaborate uncertainty effects of productivity growth on the choice between FDI and
export, the analysis starts with the simplest scenario with no productivity changes over time.
Successively, the complexity of the analysis is increased by introducing a deterministic growth
case and finally by considering the most realistic scenario represented by equation (11). This
stepwise approach permits an identification of the additional effects associated with extensions.
3.1 FDI or Export without Productivity Growth
In a scenario without any productivity growth equation (11) reduces to dtft = 0 and the investor
will determine the optimal market entry mode based on the current state of observations, as there
are no expected productivity changes in the future. Empirically, it is difficult to identify such an
industry or variety in the long run but in some sectors like in the textile industry, technology has
reached its marginal productivity frontier temporarily, and one can assume nearly zero growth
rates, at least in the short run. From a theoretical point of view, this scenario only represents a
starting point for further analysis.
In the export mode the investor’s expected periodical profits (cash-flows) ΠE are derived from
the following maximization problem
X
Πe = max p XE — wEL s.t. XE =---- s.t. XDE = ∣)Lθ s.t. p = ZXE(ν ).
(13)
Lτ
Optimal periodical labor demand LE and output XE result as
r* —
LE =
1
ГZνθ∖ i-vθ
wEτν
θ
(1 1 ∖ 1 — νθ
Zνθ ∖
----1
We τ θ J
(14)
where the investor’s domestic output which is foreseen for the export market amounts to
θ
^* oɪ Z Zνθ A 1-νθ
(15)
XD E = # 1-νθ ----
DE Wete τ v
10
More intriguing information
1. TOMOGRAPHIC IMAGE RECONSTRUCTION OF FAN-BEAM PROJECTIONS WITH EQUIDISTANT DETECTORS USING PARTIALLY CONNECTED NEURAL NETWORKS2. The resources and strategies that 10-11 year old boys use to construct masculinities in the school setting
3. The name is absent
4. Monopolistic Pricing in the Banking Industry: a Dynamic Model
5. On the job rotation problem
6. 101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey
7. MULTIPLE COMPARISONS WITH THE BEST: BAYESIAN PRECISION MEASURES OF EFFICIENCY RANKINGS
8. Effects of a Sport Education Intervention on Students’ Motivational Responses in Physical Education
9. Types of Tax Concessions for Promoting Investment in Free Economic and Trade Areas
10. The Role of area-yield crop insurance program face to the Mid-term Review of Common Agricultural Policy