Uncertain Productivity Growth and the Choice between FDI and Export

Uncertain Productivity Growth

Result 7:

For IE < IF, wEτι > wF and β > κ > 0, a rise in the degree of competition (rise in ν) decreases
the expected market entry time E(T_i*) and, also the optimal cut-offs &*. Simultaneously, the
likeliness of market entry through FDI increases.

Finally, table 1 summarizes the effects of remaining parameters.

Table 1: Summary of Comparative Statics

All adjustments which appear due to marginal changes in these parameters can be derived from
figure 7. An increase e.g. in transport costs τ leads to a reallocation in the relative cost space to
the left which is dominated by cost constellations enforcing FDI as the optimal first time market
entry mode.

Since the derived graph includes both, the parameters of dynamic aspects and static costs, it is
a convenient tool to visualize the effects of uncertain productivity growth within the proximity-
concentration trade-off framework and their impact on the optimal market entry mode.

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