Exporting decision of agricultural firms: The role of foreign direct investment

Abstract

AbstractIn this study, we examine how foreign direct investment affects agricultural firms' exporting decisions. We investigate this by using a Tobit model of export intensity, estimated on the sample of 104 Serbian agricultural firms observed in the period 2014–2017. In particular, we considered both direct and indirect export effects of foreign direct investment. The results indicate that foreign ownership positively affects firms' export intensity. Furthermore, we find that the effect is conditional on the origin of foreign capital, the strongest effects being associated with capital coming from bordering countries. Finally, the results show that the indirect effects of foreign direct investment on export are mainly negative. The results imply that agricultural firms which are a part of the system of multinational enterprises have lower costs of exporting, due to their reliance on international distribution networks and the information on foreign markets provided by the parent companies. In contrast, the costs of production for the local firms could be increased due to the intensive competition by the foreign affiliates. This means that foreign direct investment has the potential to improve the export performances of host‐country agricultural firms. However, to realize their full potential, a sufficient absorptive capacity of the local firms is required. [EconLit Citations: F21, F23, Q17].