Recent firm-based empirical studies find that firms that serve foreign markets either through exports or foreign direct investment (FDI) are more efficient than their domestically oriented counterparts. However, recent empirical literature attributes these differences to only exports. The purpose of this paper is to extend some recent works to study the link between firm performance of multinationals and choice to participate in the foreign investment. In so doing, this paper explicitly differentiates exports and FDI decisions. Using firm-level data for large Korean manufacturing firms, I provide evidences that the premium for FDI is huge compared to exports, and good firms do FDI. (The rest is omitted.)

Executive Summary

I. Introduction

II. Data

III. The Export Premium versus Premium for FDI

IV. The Self-selection Hypothesis

V. The Decision to do FDI

VI. Conclusions

References

Appendix