The internationalization process of firms: From exports to FDI?", by

We examine firms ’ choice between serving a foreign market through exports or foreign direct investment (FDI). We begin by unveiling a new empirical regularity, using a unique dataset of firms ’ export and FDI choices in individual destination markets: almost all firms serve a foreign market via exports before establishing affiliates in that market. To rationalize these patterns, we develop a simple model of internationalization choices under uncertainty, in which firms may test a foreign market via exports before engaging in FDI. Consistent with the model’s predic-tions, we find that most firms start serving a foreign market through exports; in the first few years following export entry, many firms drop out of the foreign mar-ket, others survive and expand as exporters, some establish foreign affiliates. We show that the probability of FDI entry increases with a firm’s export experience in that market; this effect decreases over time and increases with foreign market uncertainty. Our analysis suggests that exports and FDI, although substitutes from a static perspective, may be complements over time, since the knowledg