Export-Platform FDI: Cannibalization or Complementarity?

AEA Papers and Proceedings(2024)

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Abstract
We develop a model of export-platform foreign direct investment (FDI) in which final goods are produced only with labor and there are no fixed costs of exporting. We derive a simple condition that determines whether an MNE's plants are substitutes or complements. This condition is shaped by the relative size of (i) the cross-firm elasticity of demand the MNE faces for its goods and (ii) the within-firm elasticity of labor substitution across the MNE's plants. In two extensions of the model, we show that this complementarity is enhanced by firm-level (rather than plant-level) fixed costs of exporting and of sourcing inputs.
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