Firm Heterogeneity and FDI in Distribution Services

Distribution services play a large role in intermediating production and consumption across borders. Using firm-level data on Japanese multinationals in the wholesale and retail sectors, this paper examines foreign direct investment (FDI) decisions of distribution firms for local distribution services at the extensive and intensive margin. Consistent with the model of heterogeneous firms on multinational production, productive multinationals are more likely than less productive ones to enter a larger number of markets, penetrate less attractive markets, and generate larger sales per market. While these findings are consistent with previous evidence on manufacturing multinationals, there are some distinctive determinants of FDI in distribution services.