DP12639 The ladder of internationalization modes: Evidence from European firms

Author(s): Gábor Békés, Balázs Muraközy
Publication Date: January 2018
Keyword(s): export, FDI, Firm Heterogeneity, internationalization mode, ordered logit, Outsourcing, sorting
JEL(s): F14, F23
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12639

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.