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The business literature has long recognized the importance of multinationals' distribution networks. The empirical analysis of distribution-oriented FDI has, however, received little attention which is at least partly due to the lack of appropriate data. We outline a slightly modified version of Helpman, Melitz, and Yeaple (2004) that explicitly models the possibility for a multinational firm to export through its wholesale trade affiliate in order to analyze multinational firms' choice between foreign production and foreign distribution. The subsequent empirical analysis uses different discrete choice models. We use alternative specifications and report estimation results for several sub-samples of multinational firms. We also consider more complex foreign sales strategies and correct for the sample selection bias that arises because we only observe firms that have foreign affiliates. Our results show that the decision between distribution and production-oriented FDI is based on the trade-off between fixed and variable costs. -- Multinational firms ; Wholesale sales ; Discrete choice

This paper brings forward a three-country model to analyze the internationalization process in the age of globalization. It is shown that investment of one company increases not only the incentive to invest in another country for every national competitor but for third country's companies as well. That results from the adjustment of the host country's companies which react to their shrinking market share by reducing output and raising the price of their goods. Some host country's companies exit the market. The results are used to explain the surge of foreign direct investment since the mid-1980s.

Trade in intermediate goods as one possible link between rising trade and foreign direct investment is examined. To explain growing intermediate goods trade, three hypotheses are brought forward: outsourcing, global sourcing and the increasing importance of MNE networks. These hypotheses are tested by employing a cross-section framework, which uses OECD input-output table data, and an analysis, which relies on German time-series data. Increasing importance of MNE networks is found to be a reason of growing trade in intermediate goods in the cross-section and the time-series framework. The evidence for outsourcing and global sourcing is found to be much weaker.

We derive and estimate an econometric model of export versus foreign production using firm-level data on foreign activities of German multinationals. Proximity-concentration theory which we derive our model from shows that firms face a trade-off between concentrating their production at home to save on plant set-up costs and producing abroad to save on distance costs. Firms facing this trade-off choose between export and foreign production according to their expected profits. The model is brought to the data using a pooled-probit analysis over the period 1996-1999. We find support for the proximity-concentration trade-off. In particular, market size and distance affect positively the probability of foreign production whereas fixed costs have a negative impact on the decision to engage in FDI.