Export vs. FDI: Sandwich Sorting with Quadratic Preferences

15 Pages Posted: 24 Mar 2016

See all articles by Niklas Herzig

Niklas Herzig

Bielefeld University - Department of Business Administration and Economics

Date Written: March 23, 2016

Abstract

By applying quadratic instead of CES consumer preferences in a monopolistic competition model with heterogeneous firms, this paper investigates the robustness of the conventional sorting of cross-border active firms, first described by Helpman, Melitz and Yeaple (2004), and finds thereby an alternative type of sorting: While (sufficiently) productive firms export and more productive ones engage in foreign direct investment (FDI), the most productive firms do not undertake FDI, but export again, establishing the so-called sandwich sorting. Evidene for this type can be observed for investment and services trade patterns.

Keywords: Quadratic preferences, heterogeneous firms, exporting, FDI, unconventional sorting

JEL Classification: F10, F12

Suggested Citation

Herzig, Niklas, Export vs. FDI: Sandwich Sorting with Quadratic Preferences (March 23, 2016). Bielefeld Working Papers in Economics and Management No. 03-2016, Available at SSRN: https://ssrn.com/abstract=2753531 or http://dx.doi.org/10.2139/ssrn.2753531

Niklas Herzig (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany

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