Multinational firms account for more than a half of world trade, and the majority of foreign direct investment (FDI) is horizontal. Since the horizontal FDI is mainly driven by demand factors, this work focuses on the demand component determining choices of firms about entering into particular foreign markets and setting up global sales networks. Importantly, the entry into a new market is subject to uncertainty regarding the perception of firm's product by foreign consumers, as well as the realizations of aggregate demand fluctuations. On top of this, the returns to multinational activity can vary across countries and industries, which generate differences in the foreign-market entry patterns. In this dissertation, I introduce the structural frameworks suitable for the analysis of industry-specific choices of firms about the multinational sales structure under demand risk.
This thesis consists of two self-contained chapters. Both chapters are a joint work with Francesco Paolo Conteduca. Chapter 1 titled ``Serving Abroad: Export, M&A, and Greenfield Investment'' studies foreign-market entry patterns in the professional services industry. Chapter 2 titled ``The Structure of Multinational Sales under Demand Risk'' analyzes the effects of demand risk on the location and sales structure of multinational firms in the manufacturing sector.
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