Firm Heterogeneity and the Choice of Internationalization Modes: Statistical Evidence from Japanese Firm-level Data

Abstract

This paper examines how productivity heterogeneity affects the sorting of export and foreign direct investment (FDI) of Japanese firms in North America and Europe. The statistical analysis based on the firm-level data of 12,000 Japanese firms presents new and interesting results: the ranking of productivity corresponds to the mode of internationalization from export to FDI; the productivity of Japanese firms with exports to North America is similar to the productivity of firms with exports to Europe, and the productivity of Japanese FDI firms in North America is also similar to the productivity of FDI firms in Europe; and further the productivity of firms internationalizing in both North America and Europe is remarkably higher than that of firms internationalizing in either North America or Europe, regardless the modes of internationalization, export or FDI. These results conclude that the internationalization modes of Japanese firms in North America and Europe are completely consistent with the theoretical prediction of the HMY model and the fixed costs are critical for determining their choice of internationalization modes.