Exporting Behavior of Foreign Affiliates : Theory and Evidence

Firms have increasingly conducted different stages of production in different countries. In particular, they set up operations in low-cost countries (those operations are referred to as foreign affiliates in those countries) as platforms for export. What is the exporting behavior of foreign affiliates? In this paper, using data from China, we find that among foreign affiliates exporters are less productive than non-exporters (export discount). We then offer a theoretical explanation by incorporating the possibility that firms could have different stages of production in different countries into the standard firm heterogeneity model