Dissertation > Economic > Trade and Economic > States foreign trade > China's foreign trade > Import and Export Trade Overview > Export trade

Firm Heterogeneity and the Choice between Export and Outward FDI

Author GaoHongSheng
Tutor LiZhaoHua
School Huazhong University of Science and Technology
Course International Trade
Keywords Firm heterogeneity Productivity difference strength ODI "Proximity-Concentration" model
CLC F752.62
Type Master's thesis
Year 2012
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Since reform and opening-up, China’s foreign trade have a large degree ofimprovement. With the development of economy, there are more and more ways forChina’s firm to enter the international market and two basic ways are export and outwarddirect investment (ODI). Therefore,it is necessary to study the way which the enterprisechoose to enter the international market and the factors affect it. New-New trade theorythinks that it is the firm’s different enterprise productivity that affect the way they chooseto enter the international market, namely productivity high firm will choose foreign directinvestment, productivity is low firm will choose exports.Based on the New-new trade theory, this paper explores the factors that perhaps haveinfluence on the way firm chooses to enter the international market such as the wage rate,the cost of trading, the size of the market and the exchange rate, which are proved affectthe way firm chooses to enter the international market indeed. Firstly, through themathematical model expand to prove productivity, wages and the size of the market, thecost of trading to enterprise exports and ODI affect choice. Secondly, the article throughthe calculation of the28industries in Chinese manufacturing productivity size, combinedwith the new-the new trade theory from the point of view of China’s manufacturingenterprise to enter the international market to give guidance, and points out theshortcomings in them. Finally, the paper adopts the "Proximity-Concentration" model ofmathematical model derivation and statistic analysis of the results are measurementanalysis, and brought in the exchange rate the macroscopical factors. Measurementanalysis results show that for the enterprise manufacturing in China, industry differencebetween productivity of the strength of the RMB exchange rate increases, the increase ofthe trade cost increases, the expansion of the scale of the market will make the enterprisetend to choose ODI. Measurement analysis and mathematical model derivation of theresults are basically the same. In conclusion, the Chinese enterprise in export way tochoose when integrated balance all kinds of factors, and actively to speed up the pace ofinvestment.All in all, combined with the new trade theory and the China’s reality economicsituation,this paper study the way firm chooses to enter the international market. In the mathematical model and measurement analysis is make innovation, and to our countryenterprise exports and foreign direct investment given guidance suggestion.

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