There are two main options for companies to serve foreign markets; exports and foreign direct investment (FDI). Based on the Helpman, Melitz and Yeaple (2004) model for two host countries this paper derives a clear theoretical prediction for the decision between both strategies. A bivariate probit model is estimated using AMADEUS database to analyse the probability of using one or the other strategy. The empirical evidence indicates that a considerable number of companies use a combination of both strategies to serve foreign markets, which is in line with the analyzed three country model.
Exports Foreing Direct Investment Three Nations Model Bivariate Probit Estimation