Review of Industrial Organization 23: 1–24, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Foreign Expansion by Italian Manufacturing Firms
in the Nineties: an Ordered Probit Analysis
, ANNA GIUNTA
and JEFFREY B. NUGENT
ISAE (Institute for Studies and Economic Analyses), Rome, Italy. E-mail: r.basile@Isae.it
University of Calabria, Arcavacata (CS), Italy. E-mail: a.giunta@Unical.it
University of Southern California, Los Angeles, U.S.A. E-mail: email@example.com
Abstract. This paper develops an index of internationalization commitment or foreign expansion
index (FEI) of the ﬁrm. The FEI integrates various dimensions of commitment to internationalization
that, although interrelated, have usually been analyzed independently, i.e. exports, foreign penetration
operations (such as foreign commercial agreements, sales outlets abroad and so on) and FDI. Because
of its prominent inter-ﬁrm relationships and North-South discrepancies, this study focuses on Italy,
constructing FEIs for each of some 4,000 ﬁrms for three periods characterized by different exchange
rate regimes. The determinants of FEI in each period are studied at both the macro and micro levels,
the latter through the use of an ordered probit model. The ﬁndings suggest that: (a) ﬁrm size, inter-
ﬁrm relations, innovation capabilities, location and technology are all highly signiﬁcant determinants
of FEI, but their relative impact on the foreign expansion is inﬂuenced by the exchange rate regime;
and (b) although still low and especially so in the South, Italy’s FEIs have risen somewhat during the
Keywords: ﬁrm behavior, international business, qualitative choice models.
JEL Classiﬁcations: D21, F23, C25.
Although national policy makers and analysts are under increasing pressure to
assess a country’s or an industry’s competitiveness in a globalizing world, standard
measures based on exports alone are no longer satisfactory. The ability to penetrate
international markets of domestic ﬁrms now depends on larger commitments in
the form of foreign direct investment (FDI), joint ventures abroad and various
kinds of collaborative arrangements. While outward FDI by national ﬁrms is now
commonly measured at the national level allowing the determinants of FDI and
international joint ventures to be identiﬁed, little has yet been done to develop
broader measures of international market penetration. To develop such a measure
and to apply it to Italy’s manufacturing plants is the purpose of this paper.
While much of the applied work on both export and FDI performance has been
based on industry and country-level aggregates, both export and FDI propensit-
ies vary enormously across ﬁrms, even within industries and countries, calling