No abstract

In the Helpman et al. model (HMY), costs of transportation shape the decisions of firms about serving foreign customers by exporting or by doing FDI. The analysis of FDI in IT‐related services presents a challenge given the low cost of transportation through telecom networks. This study extends the HMY model by considering uncertainty in product quality. This reverses the ordering of the firms that do FDI. These predictions are tested using Indian data in two industries: chemicals and software. Chemicals represents a conventional setting, and we find that the most productive firms invest abroad. However, in the case of the software industry, where there is uncertainty about product quality and the transportation cost is low, the results are consistent with the predictions of the extended model: less productive firms invest abroad.

No abstract

Traditional explanations for trade misinvoicing --high custom duties and weak domestic economies -are less persuasive in a world of high growth emerging markets who have low trade barriers. We construct a 35-country data set over a 26 year span, covering both industrialised and developing countries, to study the phenomena of export and import misinvoicing. Capital account openness, differentials in interest rates, political stability, corruption, indebtedness and the exchange rate regime are identified as factors related to misinvoicing. Trade misinvoicing should be seen as one element of de facto capital account openness.

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