New Research Article on Corporate Internationalization Strategies

A new research article sheds light on corporate strategies for international expansion, including exports and foreign direct investments.

– In turbulent times, it is essential to have solid knowledge of the background for businesses’ internationalization choices. There are significant differences in this regard, depending on the industry and firms’ productivity. We are pleased to work on this topic with strong partners. I would like to thank my coauthors for an excellent collaboration, says partner Rasmus Bøgh Holmen at Vista Analyse.

Holmen has represented Vista Analyse in the study. The study was conducted in collaboration with Per Botolf Maurseth at BI Norwegian Business School and Jaan Masso at the University of Tartu. The article is titled “FDI and Trade for Foreign Market Entry: Theory and Evidence from Estonia” (Maurseth, Masso and Holmen 2025) and has been published in the Baltic Journal of Economics, which is part of the Taylor & Francis publishing group. The article may be downloaded here.

Empirical Testing of an Extended Trade Model

To examine how productivity differences affect strategic choices, the authors apply the framework of Helpman, Melitz and Yeaple (2004). The model is extended to include multi-factor production processes involving both goods and services trade.

The model is tested empirically using Estonian firm-level data and product-level export data. The authors investigate the empirical relationships between export behavior, outward foreign direct investments, internationalization synergies, and gravity variables.

Productivity as a Key Determinant of Internationalization Strategies

The findings support the hypothesis of selection effects in exporting, where the previously most productive firms tend to invest abroad, while the previously second most productive firms tend to export.

Outward foreign direct investments and exports act as substitutes in goods trade and as complements in services trade. Furthermore, the correlation with outward foreign direct investments is stronger for the export of intermediate goods than for final goods, indicating participation in global value chains.

Significant Differences Across Industries

The authors find that foreign direct investments and exports are overall substitutes for goods but complement each other in services. Local presence appears to be beneficial for the complementarity between outward foreign direct investments and services exports.

The findings suggest positive impulses from shared export destinations for manufacturing firms, but not for service firms. Additionally, the study provides empirical support for economic gravity mechanisms in trade, where proximity to markets is more critical for manufacturing than for services.

References

Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with heterogeneous firms. American economic review, 94(1), 300-316. DOI: https://doi.org/10.1257/000282804322970814

Maurseth, P. B., Masso, J., & Holmen, R. B. (2025). FDI and trade for foreign market entry: theory and evidence from Estonia. Baltic Journal of Economics, 25(1), 39-71. DOI: https://doi.org/10.1080/1406099X.2025.2463863