Question: Some multinationals replicate their production processes in foreign facilities located near large customer bases. This is categorized as horizontal foreign direct investment (FDI). An alternative

Some multinationals replicate their production processes in foreign facilities located near large customer bases. This is categorized as horizontal foreign direct investment

(FDI). An alternative is to export to a market instead of operating a foreign affiliate in that market. The trade-off between exports and FDI involves a lower per-unit cost for FDI (no trade cost) but an additional fixed cost associated with the foreign facility. Only firms that operate at a big enough scale will choose the FDI option over exports. LO.1

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