The HMY model: Slides

The ModelIf the rm chooses to export, it needs to pay xed costs of exporting f X perforeign market. We can think about f X as the costs of forming a distributionand servicing network in a foreign country (similar costs for the home marketare included in f D ).Alternatively, if the rm chooses to serve a foreign market via FDI, it bearscosts f I in every market. The xed costs f I include these distribution andservicing network costs, as well as the costs of forming a subsidiary in aforeign country.There are iceberg transport costs: τ ij > 1 (τ ii = 1).Monopolistic competition.Alexander Tarasov (University of Munich) The HMY model Summer 2012 6 / 27