Globalisation , Productivity and Technology Research Paper 2003 / 21 Exports versus FDI : An Empirical Test

In a recent paper Helpman, Melitz and Yeaple (2002) argue firm heterogeneity leads to self-selection in the structure of international commerce. Only the most productive firms find it profitable to meet the higher costs associated with FDI; the next set of firms find it profitable to serve foreign markets through exporting; while the least productive firms find it profitable to serve only domestic markets. The paper tests this conclusion using the concept of stochastic dominance. Robust support is found for the model, the productivity distribution of multinational firms dominates that of export firms, which in turn dominates that of non-exporters.