DPRIETI Discussion Paper Series 11-E-055

FDI in Emerging Economies:
An analysis in a firm heterogeneity model
ITO Koji
RIETI

The Research Institute of Economy, Trade and Industry

http://www.rieti.go.jp/en/

RIETI Discussion Paper Series 11-E-055
June 2011

FDI in Emerging Economies: An analysis in a firm heterogeneity model
ITO Koji 
Research Institute of Economy, Trade and Industry

Abstract
In recent years, Japanese manufacturers in both competitive and less competitive sectors havepenetrated emerging economies, and sales in 2008 by Japanese affiliates established via foreign
domestic investment (FDI) exceeded Japan’s revenues from exports. To consider thisphenomenon and the significance of FDI for emerging economies, this study constructs a
two-country model featuring two factors of production, two industries (with different factor
intensities), and firm heterogeneity. Thereafter, the study numerically analyzes trends in FDI byindustry and examines how the economies of both countries are affected.
Results of the analysis show that highly productive firms favor FDI. That is true whether
their industries make intensive use of a scarce factor of production or use a more abundantfactor intensively.
Compared to the situation in which only export is possible, FDI increases competition
among firms in both industries. Real wages and welfare increase as a result. On the other hand,
low-productivity firms are forced to exit, and the number of firms decreases. This analysis also
shows that FDI could work to help prevent a decline in real revenues of industries that makeintensive use of a scarce factor of production.

Keywords: firm heterogeneity, FDI, export, industry, and factor intensity.
JEL classification: F1

RIETI Discussion Papers Series aims at widely disseminating research results in the form of professional papers,
thereby stimulating lively discussion. The views expressed in the papers are solely those of the author(s), and do not
represent those of the Research Institute of Economy, Trade and Industry.



The author would like to thank Masahisa Fujita, Ryuhei Wakasugi, Masayuki Morikawa and otherseminar participants at RIETI for their constructive comments and suggestions.
The author also acknowledges the support of RIETI and Grants-in-Aid for Scientific Research fromthe Japan Society for the Promotion of Science (Scientific Research(c), No.22530258). Allremaining errors are my own. Email: ito-koji@rieti.go.jp
11

Introduction

In the present era, emerging economies, including Asian economies, are growing rapidly, and Japanese ﬁrms aggressively seek new markets among them.
Between 2001 and 2007, the growth rate of Japanese foreign direct investment(FDI) exceeded export growth, and sales by Japanese foreign subsidiaries
substantially exceeded Japanese exports in 2008 (Figure 1). 1 2 Second, thistrend is evident among competitive sectors, such as electronics and transportation, and among less competitive sectors, such as clothing, food, andagriculture. 3
Does the increase of FDI in emerging economies improve Japan’s economic welfare? What signiﬁcance does it have for Japan’s economy? This
study addresses these questions.
Current theoretical models for FDI are inadequate to analyze the factthat FDI and export are occurring simultaneously across multiple sectorsof Japanese manufacturing. The standard vertical FDI model since Helpman (1984) consists of two countries, two factors of production (skilled andunskilled labor), and two goods (one more skill-intensive than the other).
Helpman considered monopolistic competition in the market for diﬀerentiated goods. In the Heckscher-Ohlin model, if distribution of factor endowments is remarkably biased between countries factor prices equalization is
1This trend is obvious not merely for Japanese manufacturing but for the Japaneseindustry as a whole. According to the Bank of Japan “Balance of Payments,” cumulative
Japanese FDI, which was 39.6 trillion yen at the end of 2001, increased by 56.1 % to61.7 trillion yen at the end of 2008. Sales by foreign subsidiaries increased rapidly. Data
from the Ministry of Economy, Trade, and Industry “Basic Survey on Overseas Business
Activities” shows that sales of foreign subsidiaries in 2007 were 236.2 trillion yen, 2.8 times
greater than exports of 83.9 trillion yen. The growth rate in sales of foreign subsidiaries
between 2001 and 2007 was 9.8 % yearly compared with 9.4 % yearly growth in exports.
2
Japan’s FDI in emerging economies is increasing remarkably. According to the Ministry of Economy, Trade, and Industry “Basic Survey on Overseas Business Activities,”
sales by Japanese ﬁrms’ foreign subsidiaries in Asia grew from 20.3 trillion yen in 2001 to
49.2 trillion yen in 2007. The increase is remarkable compared to sales by Japanese ﬁrms’
foreign subsidiaries in the U.S. and Europe.
3
Even in non-manufacturing, generally considered less competitive than Japanesemanufacturing, ﬁrms are starting business in emerging markets. FDI of Japanese nonmanufacturing industries increased 46.4 % from 3,049 billion yen in 2005 to 4,462 billion
yen in 2008. The growth rate exceeds that of FDI of Japanese manufacturers (36.0 % ,from 7,311 billion yen in 2005 to 9,944 billion yen in 2008). Among the composition of
the Japanese FDI forward Asia in 2008, wholesale and retail (1,543 billion yen) is third,
behind electric machines and appliances (2,345 billion yen) and vehicles and appliance(2,076 billion yen).

1not obtained. However, Helpman divides the operations of the skill-intensive
industry in the skill-abundant country into headquarters and production andshows that factor prices are equalized by shifting production toward the foreign country which has an abundant unskilled labor.
In these “vertical FDI models,” the sharp diﬀerence in factor endowments
between two countries generates FDI, and the model works well to explain
conventional cases - for example, ﬁrms in developed economies close a domestic factory and open a factory in a developing economy where wages arelow. 4
Today, however, FDI by Japanese manufacturers transcends this model’s
usefulness. As we see, ﬁrms in the comparatively disadvantaged sector also
invest in emerging economies. In addition, many Japanese manufacturingﬁrms recognize Asian economies not only as a base of production and exporting but also as a market. 5 That mode of FDI requires a diﬀerent
theoretical model.
Markusen and Venables (1998) established the theoretical model for suchcases of “horizontal FDI.” 6 Their model also features two countries, two
production factors, and two goods. But their horizontal model diﬀers fromthe vertical model in two respects: it recognizes that trade entails costs, andit accommodates demand. They analyze multinational ﬁrms and domesticﬁrms (the former grow foreign business via FDI and pay attendant ﬁxed costs;
the latter grow foreign business by export and pay transport variable costs.
They show that when (a) consumer demand in both countries is large, (b)both countries’ factor endowments and technology (factor prices narrow) tend
to be similar, and (c) the variable cost of exporting is higher, multinationalﬁrms becomes more dominant.
The horizontal FDI model is convenient for analyzing FDI between advanced countries at similar economic levels. 7 However, economic levels and4
It previously was thought that Japanese FDI in emerging economies has mainly been
vertical FDI. Hayakawa and Matsuura (2009) calculated each sector’s share of vertical
FDI subsidiaries (subsidiaries with less than a 50 % of local sales share) in three areas(North America, Europe and Asia), using micro data from Ministry of Economy, Trade andIndustry “Basic Survey on Overseas Business Activities.” In 1999, the shares of vertical
FDI in North America and Europe, where Japanese ﬁrms mainly invest, were around 20%. On the other hand, the shares of FDI in Asian countries were 40 - 60 %.
5
For example, Kokusai Kyouryoku Ginkou (2009) surveyed Japanese manufacturers’
opinions concerning which foreign countries are most promising and why. The results
showed China, India, Vietnam, and Thailand are promising. “Expectation for future
growth of the local market” was the most popular answer.
6
Markusen (2002) shows the details concerning vertical models. Feenstra (2004) explains the outline of theories of multinational ﬁrms such as vertical and horizontal FDI.
7
Many researchers recognize that FDI by U.S. ﬁrms is mainly horizontal. For example,

2

factor endowments diﬀer between advanced economies like Japan and theemerging economies in which Japanese ﬁrms invest.
Therefore, in this study, I focus on the “ﬁrm heterogeneity” approachthat is now mainstream in trade research. In this approach, productivityof ﬁrms is the key factor that inﬂuences ﬁrms’ decisions to access foreign
markets. Following this approach, Helpman et al. (2004) expanded Melitz(2003), who treated only exports, and built a model in which ﬁrms can choose
between export and FDI. They show theoretically that higher-productivity
ﬁrms choose FDI over export. 8 9 Several ﬁrm heterogeneity models, including Helpman et al. (2004), attempt to clarify conditions under which ﬁrms
prefer export or FDI. However, these models usually consist of one productand one production factor; therefore, few consider traditional questions suchas which goods should be exported or how factors should be allocated between industries. However, these issues gradually have come to be consideredin models of ﬁrm heterogeneity. In one of the ﬁrst papers investigating thisissue, Bernard et al. (2007) expanded Melitz (2003) into a two-goods andtwo-factor model and analyzed theoretically the eﬀect of trade liberalization
given diﬀerences in factor endowments.
The results of Bernard et al. (2007) are as follows. 10 After the openby using data from the U.S. Bureau of Economic Analysis, Department of Commerce,
Blonigen (2005) reveals that 67.4 % of foreign sales of U.S. multinational ﬁrms are fromlocal markets and, therefore, horizontal FDI is dominant.
Many empirical tests also reveal that FDI by U.S. ﬁrms ﬁts the conclusions of horizontal
FDI models. For example, Carr et al. (2001) empirically examined what variables aﬀect
sales of U.S. multinationals. They found that the amount of GDP of both U.S. andinvested countries has a positive eﬀect, and the diﬀerence of GDP has a negative eﬀects.
Brainard (1997) also shows empirically that foreign sales of U.S. multinational ﬁrms arelarger when GDPs of the U.S. and the invested countries are similar.
Opinions diﬀer about the eﬀects of varying factor endowments and technologies between
countries on U.S. FDI. Carr et al. (2001) found that the skill diﬀerence (diﬀerences in theratio of skilled labor to total labor) between the U.S. and invested countries has a positiveeﬀect on the sales of multinational ﬁrms (This result supports the knowledge capital modelin which vertical and horizontal FDI coexist). Blonigen et al. (2003) conducted the same
empirical research as Carr et al. (2001), but replaced the skill diﬀerence with the diﬀerencein average years of study and showed that its coeﬃcient is negative (thereby supporting
the horizontal FDI model).
8
Recently, results of the ﬁrm heterogeneity model have been conﬁrmed empirically. See
Bernard et al. (2007) concerning U.S. ﬁrms and Wakasugi et al. (2008) and Todo (2009)
concerning Japanese ﬁrms. These investigations clarify that only a few ﬁrms account for alarge share of exports and FDI, and that ﬁrms which export or invest in foreign countries
have greater productivity and are larger than other ﬁrms.
9
Helpman (2006) surveyed ﬁrms’ choices of exporting or FDI in the economy with ﬁrm
heterogeneity of productivity.
10
In Bernard et al. (2007), goods of comparatively advantaged means goods which areproduced by using a scarce factor intensively, and trade entails ﬁxed costs and iceberg-form
variable costs.

3

ing of trade, high-productivity ﬁrms, even in comparatively disadvantaged
industries, choose to export. Hence, there is intra-industry trade in bothindustries. By the start of trade, the expected increase in revenue of thecomparatively advantaged industry is larger than that of the comparatively
disadvantaged industry. Therefore, competition in the comparatively advantaged industry intensiﬁes, and its zero-proﬁt cutoﬀ productivity increases. 11
12
The industries’ demand for factors of production also increases, and theincreased use of the relatively abundant factor by the comparatively advantaged industry is larger than that of other factors. This also causes the levelof zero-proﬁt cutoﬀ productivity to increase for the comparatively advantaged industry. In a steady state, it is larger than the increase of zero-proﬁt
cutoﬀ productivity of the comparatively disadvantaged industry.
With regard to the expected proﬁt in a foreign country, the comparatively
advantaged industry expects to earn greater proﬁts in a foreign country thandoes the comparatively disadvantaged industry.
Hence, more ﬁrms in the comparatively advantaged industry seek to export, and export cutoﬀ productivity decreases further. As a result, the difference of zero-proﬁt cutoﬀ productivity and export cutoﬀ productivity issmaller in the comparatively advantaged industry than in the comparatively
disadvantaged industry, by trade. That is, the fewer ﬁrms enters, but theshare of exporting ﬁrms in enterging ﬁrms increases more in the comparatively advantaged industry. However, as trade liberalizes, total real revenueof both advantaged and disadvantaged industries increases, but the real revenue of the comparatively disadvantaged industry decreases. That is, the real
revenue of the comparatively advantaged industry increases and improves thewealth of a country.
Bernard et al. (2007) revealed these results by building a theoreticalmodel and presenting a special numerical example in which wages of bothcountries are symmetric. 13 However, they consider only export, not FDI.
Therefore, this study adds FDI to their model and analyzes the behavior ofexporting and FDI, and analyzes the welfare eﬀect of FDI if both countries
allow FDI in addition to export. 14
11

We refer to the level of productivity at which a ﬁrm earns zero proﬁt as “zero-proﬁt
cutoﬀ productivity.” All ﬁrms with productivity above this level can produce, and no ﬁrm
with lower productivity can produce.
12
This means a greater decrease in the number of entering ﬁrms.
13“Symmetric” indicates that the ratio of skilled/unskilled labor in the home country
is the same as the ratio of unskilled/skilled labor in foreign country, and the factor priceratio of relatively abundant/scarce factor is the same in both countries.
14
We can say this task is an enlargement of Helpman (2004) to a two-goods and twofactor model.

4

The structure of this paper is as follows. Section 2 builds the theoreticalmodel. Section 3 considers the eﬀect of FDI. Section 4 presents the numericalanalysis. Section 5 concludes and considers the implications of Japanese ﬁrms
increasing their FDI in emerging economies. 15

2

Model

This study introduces FDI into the model of Bernard et al. (2007). 16 Consider a global economy consisting of two countries, two industries, and two
factors of production. Both countries have two industries: the ﬁrst employs
skilled labor intensively, and the second employs unskilled labor intensively.
The home country (a developed economy, indexed by H) has a relatively
abundant supply of skilled labor, and the foreign country (an emerging economy, indexed by F) has a relative abundance of unskilled labor. In both industries, ﬁrms with heterogeneous productivity produce diﬀerentiated goods.

2.1

Consumption

Consumers gain utility by consuming products of industries that intensively
employ skilled or unskilled labor. Suppose the utility function of the representative consumer is a Cobb-Douglas function:
UH = (C1H )α1 (C2H )α2 ,0 < αi < 1(1)

i (i = 1, 2) means an index of industry (product). That is, 1 represents askilled-labor-intensive product and 2 represents an unskilled-labor-intensive
product. α1 + α2 = 1. CiH is an index of consumed products produced byindustry i, which consists of a diﬀerentiated product qiH (ω) produced by eachﬁrm in industry i. Assume its form is a CES function
] ρ1
[∫
CiH =

qiH (ω)ρ dω

15

(2)

There is no existing research which uses two-country ﬁrm heterogeneity model with
two factors of production and two industries. Hence, in Section 2, I refer to the eﬀectof market size of two countries on FDI (which is related to the reason why we reject the
adoption of the horizontal FDI model) and industry or industries where FDI is seen (whichis related to the reason why we reject the adoption of the vertical FDI model).
16
FDI is investment behavior and entails an accumulation of capital stock. However,much existing research regards FDI as a sale of foreign subsidiaries that was previously
established via FDI, dismissing the formation of capital stock. In this paper, I follow this
idea.

5

where σ ≡ 1/(1 − ρ) > 1 is the constant elasticity of substitution acrossdiﬀerentiated goods. PiH , a price index of products produced by industry i isalso shown as a CES function of prices of diﬀerentiated goods, pHi (ω). That
is,
1
[∫
] 1−σ
1−σ
PiH =
pH
dω
(3)
i (ω)

2.2

Production

Second, we consider production activities in each country. There are two
inputs: skilled and unskilled labor. Suppose the total endowments of skilled
and unskilled labor in country H are S̄ H and L̄H , respectively, and S̄ F andL̄F in country F. Since country H has comparatively more skilled labor andcountry F comparatively more unskilled labor, that means S̄ H /L̄H > S̄ F /L̄F .
17

In this model, each ﬁrm must pay ﬁxed entry costs by employing skilled
and unskilled labor when it enters an industry. The cost is shown as
feiH (wSH )βi (wLH )1−βi ,feiH > 0(4)where wSH and wLH are the wages of skilled and unskilled labor in country H.
Each ﬁrm does not know its productivity before entering a foreign market.
Only after entering does it discover its productivity, which is stochastically
distributed.
After entering, each ﬁrm decides (a) whether it produces or not, and (b)whether it enter a foreign market or not, considering its productivity andfollowing several costs.
When a ﬁrm produces a good, it has to pay production costs. In thismodel, production costs consist of a ﬁxed and a variable cost. Fixed costsof each ﬁrm in an industry are identical. Variable cost is a function of eachﬁrm’s productivity. Suppose the cost function of a ﬁrm with productivity
ϕH
i is
[
]
H
q
i
H
H
H 1−βiH βi, 1 > β1 > β2(5)ΓHi (ϕi ) = fi + H (wS ) (wL )ϕi
Suppose industrial factor intensities, β1 and β2 , are common in both countries
and β1 > β2 (that is, industry 1 is more intensive with respect to skilledlabor). fiH (> 0) is a factor of ﬁxed cost.
17

In the following sections, as per Bernard et al. (2007), I refer to products produced
using the comparatively abundant (scarce) factor intensively, “comparatively advantaged(disadvantaged) products.”

6

A ﬁrm can enter a foreign market by export or via FDI, but it must pay
additional costs. When exporting, a ﬁrm also must pay iceberg-style variabletransport costs and ﬁxed cost. The ﬁxed cost of exporting isH
fix(wSH )βi (wLH )1−βi ,

H
fix
> fiH

(6)

H
The common ﬁxed factor for each ﬁrm, fix, is larger than fiH . I assume thestandard icedberg-style variable transport cost. That is, τi (> 1) units areneeded to export one unit of product to a foreign market.
When a ﬁrm enters a foreign market via FDI, it must pay the ﬁxed costof FDI and the ﬁxed cost for additional production in the foreign market.
H(fia+ fiF )(wSF )βi (wLF )1−βi ,

H
H
fia
> fix

(7)

H
H
The common ﬁxed factor of FDI, fia, is larger than fix
and a function ofwages in the foreign country.
Taking account of its productivity, costs of production, export, and FDI,
etc., each ﬁrm examines its production alternatives. Firms have four choices:(a) no production, (b) produce only for the domestic market, (c) produce fordomestic and export markets, and (d) produce in both countries. Productivity diﬀers for each ﬁrm. Therefore, not all ﬁrms enter the foreign market byexporting or FDI. Some ﬁrms choose not to enter the foreign market at all.
As in the usual ﬁrm heterogeneity models, suppose that ﬁrms in eachindustry compete in monopolistically competitive markets. As a result of
proﬁt maximization, each ﬁrm sets its price as follows. First, the price forcountry H by a ﬁrm in industry i, pH
id , is shown as(wSH )βi (wLH )1−βiHHpid (ϕi ) =
ρϕH
i

(8)

Considering ﬁxed and variable costs of exporting, the price of exporting
products into the foreign market, pH
ix , isHpHix (ϕi ) =τi (wSH )βi (wLH )1−βi
ρϕH
i

(9)

The price set by a ﬁrm that chooses FDI instead of exporting is(wSF )βi (wLF )1−βiHHpia (ϕi ) =
ρϕH
i

(10)

Given the prices established above, a ﬁrm’s revenue from its domestic
market, export, and FDI is shown as follows. Revenue from its domestic
market is
(
)σ−1
H H
ϕ
ρP
i
i
H
H
rid
(ϕH
(11)
i ) = αi R
(wSH )βi (wLH )1−βi
7RH is the total wages of domestic consumers.
Revenue from export and FDI are shown as follows, respectively.
()σ−1 (
)
F
F
P
R
i
1−σ
H
rix
(ϕH
rH (ϕH )i ) = τi
RH id i
PiH(
H
HF σ−1ria(ϕHi ) = (W Ri )where
W RiHF ≡PiF
PiH)σ−1 ()
RFrH (ϕH )RH id i

(12)

(13)

(wSH )βi (wLH )1−βi(wSF )βi (wLF )1−βi

Finally, proﬁts from the domestic market, export, and FDI are calculated
from the revenue and costs presented above:
H
rid
(ϕ)
− fiH (wSH )βi (wLH )1−βi
σ

(14)

H
rix
(ϕ)
H
H
H
− fix
(wSH )βi (wLH )1−βi
πix (ϕi ) =

(15)

H
πid
(ϕH
i ) =

σ
H
ria (ϕ)H
Hπia(ϕH− (fia+ fiF )(wSF )βi (wLF )1−βi
i ) =
σ

2.3

(16)

Conditions for Production, Export and FDI

Here, we consider the condition of domestic production, export, and FDI.
Suppose the zero-proﬁt cutoﬀ productivity of industry i in country H is ϕ∗Hi .
By deﬁnition, the following equation holds:
HH
H βi
H 1−βirid(ϕ∗Hi ) = σfi (wS ) (wL )(17)

I refer to the productivity level at which a ﬁrm’s proﬁt from exportingis zero as “export cutoﬀ productivity,” and the productivity level at which
proﬁt from FDI is zero as “FDI cutoﬀ productivity.” Suppose the export∗Hand FDI cutoﬀ productivities of industry i in country H are ϕ∗Hix and ϕia ,respectively. By deﬁnition,
H 1−βi
H βi
H
H
(ϕ∗H
rix
ix ) = σfix (wS ) (wL )

(18)

∗H
H
H
(ϕ∗H
πia
ia ) = πix (ϕia )

(19)

8

hold. From (14), with regard to arbitrary two productivities ϕ0 and ϕ”,rid (ϕ”) = (ϕ”/ϕ0 )σ−1 rid (ϕ0 ) holds. From this relationship and (18), we have
(
H ∗H
ϕ∗H
ix = Λi ϕiwhere ΛHi ≡ τi

PiH
PiF

)(

H
RH fix
RF fiH

1
) σ−1

(20)

That is, as the variable cost of exporting rises and the ratio of ﬁxed export
costs to ﬁxed production costs increases, export cutoﬀ productivity increases
compared to zero-proﬁt cutoﬀ productivity. Examining the relationship between domestic and foreign markets, the larger ratio of the domestic pricelevel PiH to the foreign price level PiF , and the larger ratio of the domestic total wage RH to the foreign total wage RF raise the export cutoﬀ productivity
to zero-proﬁt productivity.
From (19), the following relationship can be shown:H ∗Hϕ∗Hia = θi ϕi

(21)

where
(
θiH ≡

PiH
PiF

){

H

R
1
F
H
F
1−σ
R (W Ri )− τi1−σW RiF H ≡(H
H
fiF + fai
fix
FH
W
R
−
i
fiH
fiH

1
)} σ−1(wSF )βi (wLF )1−βi(wSH )βi (wLH )1−βi

This equation shows the same relationship between relative price and market
size as equation (20). Additionally, when the cost of FDI increases relative
to the cost of exporting, the FDI cutoﬀ productivity increases relative tozero-proﬁt cutoﬀ productivity. 18

18

From equation (21), we can indicate the following points.
With regard to the eﬀect of market size of two countries on FDI, even in case that thediﬀerential of two countries’ market size (the total wages, RH and RF ) is quite large,
there are FDI ﬁrms in both countries unless θiH is inﬁnite. In this regard, our model iscloser to the actual tendency of FDI between developed and developing countries thanthe horizontal FDI model in which FDI might not be seen when economic sizes of two
countries are quite diﬀerent.
With regard to the industry (or industries) where FDI can be seen, it is clear that someﬁrms in the comparatively advantage and disadvantaged industry in both countries also
enter the foreign market via FDI unless θiH is inﬁnite because equation (21) holds in bothindustries. To this extent, our model is closer to the actual tendency of FDI between
developed and developing countries than the vertical FDI model in which FDI cannot beseen only in comparative advantage industry in one country.

9

2.4

Free Entry Condition

A ﬁrm decides to enter an industry by comparing the expected proﬁts andcosts of entering the market. I assume that ﬁrms exit the industry at aconstant rate δ after entry.
χHi =1 − G(ϕ∗Hix )1 − G(ϕ∗H
i )

(22)

1 − G(ϕ∗Hia )1 − G(ϕ∗Hi )The expected proﬁt is described as follows:
φH
i =

(23)

1 − G(ϕ∗H
i )
H
H
H H
(π̄id
+ χH
i π̄ix + φi π̄ia )
δ
where
χH
i =

1 − G(ϕ∗Hix )1 − G(ϕ∗H
i )

(24)

(25)

1 − G(ϕ∗Hia )(26)
1 − G(ϕ∗Hi )are the conditional probability of export and FDI after entry, respectively,
and
φH
i =

H
π̄id
=

1
1 − G(ϕ∗Hi )∫ ∞ {(
ϕ∗H
i

ϕH
i
∗H
ϕi

)σ−1

}
H
H
H βi
H 1−βi− 1 g(ϕHi )dϕi · fi (wS ) (wL )

(27)

1
H
π̄ix
=
∗H
G(ϕia ) − G(ϕ∗H
ix )

{(
∫ ϕ∗H
ia
ϕ∗H
ix

ϕH
i
ϕ∗H
ix

)σ−1

}
H H
H βi
H 1−βi−1 g(ϕHi )dϕi ·fix (wS ) (wL )

(28)

H
=
π̄ia

∫ ∞ {(

ϕH
i
∗H
ϕi

)σ−1

(

)σ−1 }
ϕH
ia
H
−
g(ϕH
i )dϕi
∗H
ϕi
ϕ∗H
ia
)(
(
)σ−1
F
H
P
R
i
·fiH (wSH )βi (wLH )1−βi (W RiHF )σ−1
RF
PiH
}
)σ−1
{(
∗H
ϕia
H
(wSH )βi (wLH )1−βi− 1 fix+∗H
ϕix

1
1 − G(ϕ∗H
ia )

10

(29)

are the average proﬁt from domestic sales, export and FDI, respectively.
If the expected proﬁt continues to exceed entry cost, ﬁrms continue toenter the industry. Finally, in equilibrium, the expected proﬁt equals thecost of entry.
1 − G(ϕ∗Hi )H 1−βi
H βi
H
H H
H
H
+ χH
(π̄id
i π̄ix + φi π̄ia ) = fei (wS ) (wL )δ(30)This is the free entry condition.

2.5

Equilibrium Condition

In equilibrium, the sales revenue of goods is equal to consumners’ expense
to the goods in each industry of both countries. In country H, the following
equation holds:
(
)1−σ
(
)1−σ
H ˜H
H ˜H
p
(
ϕ
)
p
(
ϕ
)
ix
ix
H
RiH = αi RH MiH id Hi+ αi RF χH
i Mi
Pi
PiF
(
)1−σ
H ˜H
p
(
ϕ
)
ia
ia
H
+αi RF MiH φH
(31)
i Mi
PiH
where MiH is the number of ﬁrms that entered industry i.
The price index in equilibrium is
[

1
] 1−σ

˜H 1−σ + χF M F (τ pF (ϕ˜F ))1−σ + φF M F pF (ϕ˜F )1−σ
PiH = MiH (pHi idid (ϕi ))
i
i
i
i ia
ix
ia
(32)

After FDI is allowed, foreign ﬁrms also employ workers in the foreigncountry. Therefore, in labor market equilibrium the following equations hold:H
H= S̄ H+ S2a
S1H + S2H + S1a

(33)

H
H
H
H
LH
1 + L2 + L1a + L2a = L̄(34)

where SiH and LH
i are skilled and unskilled labor employed by domestic ﬁrms,
H
H
and Sia and Lia are skilled and unskilled labor employed by foreign ﬁrms.
H
H
Regarding SiH , LH
i , Sia and Lia ,
wSH
β1 LH
β2 LH
β1 LH
β2 LH
1
2
1a
2a
=
=
=
=
H
H
1 − β1 S1H
1 − β2 S2H
1 − β1 S1a
1 − β2 S2a
wLH
11

(35)

holds by cost minimization.
Taking entry and FDI into account, the following relationship holds beH
tween SiH and Sia.
[{( )σ−1
}
]
H
F
F
F
LH
φ
M
θ
Sia
i
i
i
= ia
=
− 1 fix W RiF H + (fi + fai )
H
H
H
F
SiH
LH
f
M
+
f
χ
M
Λ
i i
ix i
i
i
i
(36)
In addition, the revenue of each industry is equal to the expense to the
production factors. HenceF F
F F
RiH = wSH SiH + wLH LH
i + wS Sia + wL Lia(37)

holds. This is the whole model. 19

3

Characteristics of the Equilibrium

We cannot have a closed-form in this model. Therefore, I demonstrate anumerical example in the next section. However before doing so, I reveal a
few characteristics of the equilibrium of the model.
We assume that the FDI cutoﬀ productivity ϕ∗Hia exceeds zero-proﬁt cutoﬀ∗H 20
productivity ϕi .
Then ﬁrms with productivity exceeding ϕ∗Hia enter the∗Hforeign market via FDI. Regarding the relationship between ϕia and ϕ∗Hix ,we can put forth the following proposition:
Proposition 1 Other things being equal, the relationship between ϕ∗Hix and∗Hϕia is decided by (a) export variable cost τi , (b) the diﬀerence between ﬁxed
HH
cost of FDI and export fiF + fai− fix, and (c) the wage diﬀerential of bothH
H
countries. The larger τi , the smaller fiF + fai− fix
is and the larger wage∗H∗H
diﬀerence, the smaller is ϕia compared to ϕix .
19

The number of ﬁrms which enter an industry is decided to keep the total number ofHﬁrms constant. Let Mei
be the number of ﬁrms to enter into industry i. As ﬁrms exit theindustry at a constant rate δ in each period, then
H
Mei
=

δMiH
1 − G(ϕ∗Hi )H H
H 1−βiholds. The total industrial cost of entry Mei
fei (wSH )βi (wL)
is equal to the industrial
total proﬁt because of (30), and the amount of the total industrial revenue RiH deductedby proﬁt is equal to the payment to labor in the production sector.
20∗H
When ϕ∗H
ia is below ϕi , all ﬁrms that enter an industry enter foreign markets by
FDI. However we do not consider such a case because it is quite diﬀerent from the resultsof empirical research.

12

H
Proposition 1 is clear from the comparison of ΛHi and θi . That is, if thecost of FDI is less than the cost of exporting, more ﬁrms prefer FDI over∗H
21
exporting. ϕ∗Hix > ϕia might hold.
Next, regarding industrial zero-proﬁt cutoﬀ productivity and average productivity, the following proposition holds:

Proposition 2 If FDI is allowed under the condition in which costly export
is possible, the zero-proﬁt cutoﬀ productivity and average productivity rise ineach industry. 22
In both industries, FDI raises the expected revenue from entering theforeign market. Therefore, more ﬁrms enter the foreign market, and competition intensiﬁes. More intense competition forces low-productivity ﬁrms toexit the market, and both zero-proﬁt cutoﬀ productivity and average productivity rise.
Let us compare industrial shares of FDI ﬁrms. We can see which industry
has the larger share by looking at the value of θ1H /θ2H . Under free trade, it
becomes 1. If there is no trade (τ is inﬁnite),
1
{
} σ−1
θ1H
=
θ2H

(SLF H )σ(β1 −β2 )H
H)(SLF H )1−β1 − f1x(SLF H )(1−β2 )(1−σ)(f1H + fa1
H )(SLF H )1−β2 − f H (SLF H )(1−β1 )(1−σ)(f2H + fa2
2x

where
SLF H ≡

(38)

S̄ F /L̄F
S̄ H /L̄H

holds. If the coeﬃcients of production, consumption, FDI ﬁxed cost, andexport variable cost are the same in both countries, the right-hand side of(38) is decided by σ. Under a normal situation in which σ is from 3 to 4, thevalue exceeds 1 (Figure 2). Under costly trade, θ1H /θ2H is aﬀected by the ratio
of prices of each good between the two countries. But if the price diﬀerenceis small, it converges between the free trade economy and autarky, greaterthan 1. That is, the share of FDI ﬁrms in the comparatively disadvantaged
industry is larger than that of the comparatively advantaged industry.
In addition, we can point out the following proposition from this equation:
Proposition 3 When prices are given, θ1H /θ2H converges to 1 if(a) The export variable cost τi is smaller.
(b) The diﬀerence of skilled labor intensity (β1 − β2 ) is smaller.
∗H
In this case, by deﬁnition of ϕ∗Hia , all ﬁrms with higher productivity than ϕia enter
into the foreign market by FDI and no ﬁrm chooses export. But this is also quite adeparture from the result of empirical research.
22
The proof of this property is the same as for Proposition 4. of Bernard et al. (2007).
21

13

(c) The diﬀerence of ratio of factor endowments is smaller (SLF H converges to 1).
This proposition means that (a) even in a comparatively advantaged industry,ﬁrms have an incentive to invest in the foreign country when the variable costof exporting is high, and (b) if the factor endowments and technology of bothcountries become similar, ﬁrms in both industries will make similar choices
regarding FDI and exporting.
In the costly trade model of Bernard et al. (2007), the increment of
the zero-proﬁt cutoﬀ productivity of a comparatively advantaged industry
is larger than that of the comparatively disadvantaged industry (∆ϕ∗H
>
1
∗H
∗F
∗F
∆ϕ2 , ∆ϕ2 > ∆ϕ1 ) , and the average productivity of a comparatively
advantaged industry increases than that of comparatively disadvantaged industry. Such results are proved under the condition that there is no FDI. In
this paper, the same results do not necessarily hold, as we see in the next
section.

4

Numerical Solutions

As Bernard et al. (2007) show, we cannot have a closed-form solution ina two-good and two-factor model of ﬁrm heterogeneity with costly trade.
Therefore, they show numerical solutions by simulation. 23 As they did, I
show the results of numerical solutions because the model in this paper ismore complex than them.

4.1

Parameters

In my simulation, the benchmark is Bernard et al. (2007). Therefore, I set
the parameters as they did.
The distribution of ﬁrms’ productivity ϕi follows a Pareto distribution,
which is standard in the ﬁrm heterogeneity models. That is, the distributionfunction G(ϕi ) and density function dG(ϕi ) are deﬁned as follows:G(ϕi ) = 1 − k b ϕ−bi−(b+1)dG(ϕi ) = bk b ϕi
23

(39)
(40)

In horizontal FDI models, numerical solutions are often used as in Markusen and
Venables (1998) and Markusen(2002).

14

b(> 0) and k(> 0) are parameters. k indicates the lowest productivity among
entering ﬁrms. Here, I set b = 3.4, k = 0.2. Regarding consumption, suppose
σ is 3.8 (standard) and the parameters of consumption function are α1 =α2 = 0.5. Cost parameters of export and FDI are set as fei = 2, fi = 0.1,
and fix = 0.1. The new parameter included in this study, fia , is set as 0.5.
The exit probability of ﬁrm, δ, is 0.025. These parameters are the same inboth countries.
As for factor endowments, suppose that S̄ H = 1200, L̄H = 1000, S̄ F =1000 and L̄F = 1200. I assume that the endowment of each factor diﬀers
between two countries but the ratio of the relatively abundant factor to thescarce factor is the same. Factor intensity for each industry is set as β1 = 0.6
and β2 = 0.4.
I also change the value of variable trade cost τi from 1.2 to 2.0 and we
can see the eﬀect when trade cost decreases.
I set wages symmetrically, as per Bernard et al. (2007). This indicatesthat wages of skilled labor in the home country wSH are the same as wages of
unskilled labor in the foreign country wLF , and wLH = wSF .
I performed simulations under these parameters and found solutions byusing Dynare. 24

4.2

Entry and Access to foreign market

First, I look at the entry to industry by ﬁrms and access to foreign market.
The FDI cutoﬀ productivity of the comparatively disadvantaged industry
exceeds that of the comparatively advantaged industry because price levels
do not diﬀer signiﬁcantly between the two countries, as seen in the preceding
section (Figure 3). 25
Export cutoﬀ productivity of the comparatively advantaged industry ishigher than that of the comparatively disadvantaged industry when the degree of trade liberalization τi is high (for example, in the case of low tariﬀ
rates) (Figure 4). This phenomenon, not compatible with the Hecksher-Ohlinmodel, arises as follows.
24

Dynare is a program for analyzing dynamic stochastic general equilibrium models.
Our model is not dynamic, but we can have steady state values of our nonlinear equation
system by using Dynare.
25
The variables of the comparatively advantaged (disadvantaged) industry in country H
are almost the same as those of the comparatively advantaged (disadvantaged) industry
in country F. Hence, I explain the result of country H only. BK refers to the result of mybenchmark, Bernard et al. (2007).

15

As we have seen, the comparatively disadvantaged industry prefers FDI
and the comparatively advantaged industry prefers to export. As trade isliberalized, ﬁrms in the comparatively advantaged industry attempt to shift
from FDI to exporting. Firms in the comparatively disadvantaged industry attempt the same maneuver, but less earnestly. The increase of exportﬁrms in the comparatively advantaged industry has numerous lowering effects on the price of comparatively disadvantaged industry in the importing
country. 26 Hence, in the importing country, the relative price ratio of thecomparatively advantaged industry increases and that of the comparatively
disadvantaged industry decreases. As a result, the export cutoﬀ productivityof the comparatively advantaged industry exceeds that of the comparatively
disadvantaged industry.
Zero-proﬁt cutoﬀ productivity of the comparatively disadvantaged industry also exceeds that of the comparatively advantaged industry when tradeis liberal because the increase in imports intensiﬁes competition. There is nowonder that the expected revenue of each industry increases, compared to
the Bernard-Redding-Schott Benchmark, because of FDI.

4.3

Price index and real factor priceCompared to the Bernard-Redding-Schott Benchmark case, price indexes ofeach industry P1H and P2H decrease because FDI intensiﬁes competition. The
noteworthy points are (a) P2H is lower than P1H when trade is highly liberalized, and (b) P1H declines as τi rises. The reason for (a) is the increased
imports by the comparatively disadvantaged industry (the comparatively advantaged industry in the foreign country). The reason for (b) is the behaviorof FDI ﬁrms. The explanation is as follows.
When trade is less liberal, both industries prefer FDI over exporting, but
the comparatively disadvantaged industry is more proﬁtable because it canemploy the abundant factor it uses intensively in production. Therefore,
FDI increases among ﬁrms in the comparatively disadvantaged industry anddrives down the price index of the comparatively advantaged industry in theforeign country.
Real factor prices (real wages)
WSH ≡

wsH
,
(P1H )α1 (P2H )α2

WLH ≡

26

wLH
(P1H )α1 (P2H )α2Price index is decided by (a) the number of domestic, export, and FDI ﬁrms and (b)each average price of the these three categories of ﬁrms.

16increase more than in the benchmark case because FDI increases demand
for factors of production (Figure 7). It is diﬀerent from the benchmarkthat the wage of unskilled labor increases as the degree of trade freedom
diminishes. This is because less liberal trade prompts more ﬁrms in thecomparatively advantaged industry (comparative disadvantaged industry inforeign country) to prefer FDI.

4.4

Number of Firms

Greater competition by FDI lowers the number of ﬁrms compared to thebenchmark case (Figure 8). The decrease of ﬁrms in the comparatively disadvantaged industry is obvious. Therefore, the number of exporting ﬁrms and
FDI ﬁrms in the comparatively advantaged industry exceeds that of the comparatively disadvantaged industry regardless of the degree of liberal trade.
Note that (a) the number of entry ﬁrms decreases in both industries, and (b)the number of ﬁrms in the comparatively advantaged industry is larger thanthat in the comparatively disadvantaged industry. These situations are thesame as the Bernard-Redding-Schott Bbenchmark.
On the one hand, as trade is liberalized, the number of exporting ﬁrms
increases because export cutoﬀ productivity decreases. On the other hand,the number of FDI ﬁrms decreases because of the increase in FDI cutoﬀ
productivity.

4.5

Employment

The trend of employment is the same as the benchmark case. We see anincrease in employment for the comparatively advantaged industry and adecrease for the comparatively disadvantaged industry (Figure 9).
Looking at the composition of employment by domestic ﬁrms and FDI
foreign ﬁrms, FDI ﬁrms in both industries reduce employment but FDI ﬁrms
in the comparatively advantaged industry reduces less. The diﬀerence is
explained by the diﬀerent tendencies toward FDI in both industries.
Domestic ﬁrms in the comparatively advantaged industry increase employment as trade is liberalized. Domestic ﬁrms in the comparatively disadvantaged industry can also increase employment because FDI ﬁrms reduce
their workforces, mainly less abundant unskilled workers in the country.

17

4.6

Industrial real revenue and Welfare

Real revenue of the comparatively advantaged industry
RRiH ≡RiH(P1H )α1 (P2H )α2increases because it expands exports after trade is liberalized (Figure 10).
Real revenue is higher than the benchmark case because revenue per ﬁrmincreases as the number of ﬁrms decreases.
By contrast, we cannot posit a simple relationship between the real revenue of the comparatively disadvantaged industry and trade liberalization.
Intensiﬁed competition from FDI prompts more ﬁrms to exit the industry, depressing real revenue. But the decrease in export cut-oﬀ productivity greaterthan the comparatively advantaged industry makes the number of exportﬁrms increase. In our numerical example, the latter eﬀect, coupled with theeﬀect of a decreased price level, exceeds the former eﬀect.
Economic welfare U H is equal to the sum of each industry’s real revenue,(R1H + R2H )/(P1H )α1 (P2H )α1 . 27 We can conﬁrm that FDI increases welfare in
our case (Figure 11).

5

Conclusion

In this study, I have expanded a recently-developed ﬁrm heterogeneity model
into a two-goods two-factor model and introduced FDI in the model. Then I
analyzed the tendencies of industries to choose exporting or FDI and analyzed
the eﬀect of FDI on the economy through numerical examples.
The model demonstrates that highly productive ﬁrms tend to prefer FDI
whether they are in an industry that employs an abundant factor of production intensively or in an industry that employs a scarcer factor intensively.
This is the outcome that earlier vertical and horizontal FDI models cannot
explain well. In addition, the model demonstrates that ﬁrms in the former
industrial category are more likely to choose FDI, and this result reﬂects
the actual preference of Japanese ﬁrms when building businesses in emerging
economies.
According to results demonstrated by the model, FDI increases competition among ﬁrms and raises the real wage and welfare of both countries.
27

This relationship is introduced from the utility maximization condition. The sum ofboth industries’ revenue, R1H + R2H , is distributed to P1H C1H and P2H C2H at α : 1 − α, andwe can have the equation by substituting the relationship.

18

On the whole, it is desirable to facilitate FDI, but doing so also has negative
consequences; increased competition forces low-productivity ﬁrms to exit themarket, and the number of ﬁrms decreases.
The industry that employs the relatively abundant factor of production
intensively has greater ﬂexibility in choosing exporting or FDI. As expected,ﬁrms in such an industry export when trade conditions are liberal, and they
access foreign markets via FDI when conditions are restrictive. In contrast,ﬁrms in the industry employing the scarcer factor intensively are locked into
FDI because conditions do not favor export. However, these ﬁrms can makeuse of the more abundant factor of production available in the foreign economy.
The diﬀerence in tendencies of industries to choose exporting or FDI affects the industries’ revenue. If trade is liberal, the industry employing themore abundant factor intensively prefers export over FDI, and the industry’s
real revenue increases. The other industry also shifts from FDI to exporting,but less intently. However, the increase in number of exporting ﬁrms raises
the industry’s real revenue. The increase of real revenue in the industry employing the scarcer factor intensively diﬀers markedly from results suggestedby the models of Heckscher-Ohlin and Bernard et al. (2007).
FDI by Japanese manufacturers in emerging economies has been active
across sectors. According to results of this study, it is rational for highproductivity ﬁrms to invest in emerging economies with lower wages, even if
those ﬁrms employ unskilled labor intensively. In addition, the level of trade
restrictions in emerging economies is greater than that in advanced countries,
making it more eﬀective for Japanese ﬁrms to use FDI that to export.
Numerous policy implications emerge from this research. In particular,
it is important for policymakers to liberalize not only trade but also FDI. In
Japan’s case, trade liberalization beneﬁts industries employing skilled laborand hinders industries employing unskilled labor. Improving opportunities
for FDI could reduce the impact on the latter even though the exit of lowproductivity ﬁrms is inevitable. Many emerging economies restrict foreign
investment to protect their domestic industries. Japan should appeal to theirgovernments to ease FDI restrictions, especially for industries that employ
more unskilled workers.
From the viewpoint of promoting Japanese FDI, it is import to facilitate
FDI by ﬁrms in industries reliant on unskilled labor. Sales by Japanese foreign aﬃliates are nearly three times larger than exports by Japanese ﬁrms.
But as recent empirical research reveals, FDI is common only among a few

19large, highly productive ﬁrms. Since the cost of entering foreign markets affects the choice of FDI, policies to reduce this cost are essential for promoting
FDI by ﬁrms lacking information about foreign markets. Such policies include assisting with information about foreign markets and foreign countries’
policies toward FDI and business risk.

20

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21

[12] Helpman, Elhanan. (2006). “Trade, FDI and the Organization of Firms.”
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[13] Helpman, Elhanan, Marc J. Melitz, and Stephan R. Yeaple. (2004).
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[14] Markusen, James R. and Anthony j. Venables. (1998). “MultinationalFirms and the New Trade Theory.” Journal of International Economics,
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Paper Series, 09-E-019.

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㻹㼕㼚㼑㼞㼍㼘㻌㻲㼡㼑㼘 㻵㼞㼛㼚㻌㻒㻌㻿㼠㼑㼑㼘 㻺㼛㼚㼒㼑㼞㼞㼛㼡㼟㻹㼑㼠㼍㼘㻳㼑㼚㼑㼞㼍㼘
㻹㼍㼏㼔㼕㼚㼑

㻿㼛㼡㼞㼏㼑䠖㻹㼕㼚㼕㼟㼠㼞㼥㻌㼛㼒㻌㻲㼕㼚㼍㼚㼏㼑㻌㻎㼀㼞㼍㼐㼑㻌㻿㼠㼍㼠㼕㼟㼠㼕㼏㼟㻌㼛㼒㻌㻶㼍㼜㼍㼚㻎㻘㻌㻌㻹㼕㼚㼕㼟㼠㼞㼥㻌㼛㼒㻌㻱㼏㼛㼚㼛㼙㼥㻘㻌㼀㼞㼍㼐㼑㻌㼍㼚㼐㻌㻵㼚㼐㼡㼟㼠㼞㼥㻌㻎㻮㼍㼟㼕㼏㻌㻿㼡㼞㼢㼑㼥㻌㼛㼚㻌㻻㼢㼑㼞㼟㼑㼍㼟㻌㻮㼡㼟㼕㼚㼑㼟㼟㻌㻭㼏㼠㼕㼢㼕㼠㼕㼑㼟㻎23㻲㼕㼓㼡㼞㼑㻌㻞 䃢 㼍㼚㼐㻌䃗㻝䠋䃗䠎 䠄㼕㼚㻌㻭㼡㼠㼍㼞㼗㼥㻕䠄䃗㻝䠋䃗䠎䠅
㻝㻚㻥
㻝㻚㻤
㻝㻚㻣
㻝㻚㻢
㻝㻚㻡
㻝㻚㻠
㻝㻚㻟
㻝㻚㻞
㻝㻚㻝
㻝
㻞

㻟

㻠

㻡
㻔䃢㻕

㻺㼛㼠㼑䠖 㼂㼍㼞㼕㼍㼎㼘㼑㼟㻌㼍㼞㼑㻌㼍㼟㻌㼒㼛㼘㼘㼛㼣㼟㻚㻲㼍㼏㼠㼛㼞㻌㼑㼚㼐㼛㼣㼙㼑㼚㼠䠖 㻿㼗㼕㼘㼘㼑㼐㻌㻸㼍㼎㼛㼞㻌㼕㼚㻌㼏㼛㼡㼚㼠㼞㼥㻌㻴㻌㻌㻩㻌㻝㻞㻜㻜 㼁㼚㼟㼗㼕㼘㼘㼑㼐㻌㼘㼍㼎㼛㼞㻌㼕㼚㻌㼏㼛㼡㼚㼠㼞㼥㻌㻴㻌㻩㻌㻝㻜㻜㻜㻿㼗㼕㼘㼘㼑㼐㻌㻸㼍㼎㼛㼞㻌㼕㼚㻌㼏㼛㼡㼚㼠㼞㼥㻌㻲㻌㻌㻩㻌㻝㻜㻜㻜 㼁㼚㼟㼗㼕㼘㼘㼑㼐㻌㼘㼍㼎㼛㼞㻌㼕㼚㻌㼏㼛㼡㼚㼠㼞㼥㻌㻲㻌㻩㻌㻝㻞㻜㻜䡂㼕㻌䠙㻜㻚㻝䚸 䡂㼕㼤㻌䠙㻜㻚㻝䚸 䡂㼕㼍䠙㻜㻚㻡䚸䃣㼕䠙㻝㻚㻞䠄㼏㼛㼙㼙㼛㼚㻌㼕㼚㻌㼎㼛㼠㼔㻌㼏㼛㼡㼚㼠㼞㼕㼑㼟㻌㼍㼚㼐㻌㼎㼛㼠㼔㻌㼕㼚㼐㼡㼟㼠㼞㼕㼑㼟䠅䃑㻝䠙㻜㻚㻢䚸䃑䠎䠙㻜㻚㻢 䠄㼏㼛㼙㼙㼛㼚㻌㼕㼚㻌㼎㼛㼠㼔㻌㼏㼛㼡㼚㼠㼞㼕㼑㼟䠅24

㻲㼕㼓㼡㼞㼑㻌㻟 㻲㻰㻵㻌㻼㼞㼛㼐㼡㼏㼠㼕㼢㼕㼠㼥㻌㻯㼡㼠㻙㻻㼒㼒㻌㼎㼥㻌㻵㼚㼐㼡㼟㼠㼞㼥㻌㻌

㻝㻚㻠

㻝㻚㻞

㻝

㻜㻚㻤
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝25㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞䚷䚷䚷㻲㼕㼓㼡㼞㼑㻌㻠䚷㻱㼤㼜㼛㼞㼠㼕㼚㼓㻌㻼㼞㼛㼐㼡㼏㼠㼕㼢㼕㼠㼥㻌㻯㼡㼠㻙㻻㼒㼒㻌㼎㼥㻌㻵㼚㼐㼡㼟㼠㼞㼥

㻝
㻜㻚㻥
㻜㻚㻤
㻜㻚㻣
㻜㻚㻢
㻜㻚㻡
㻝㻚㻞

㻝㻚㻡
㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻞㻚㻜㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻔㻮㻷㻕㻔䃣㻕㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻔㻮㻷㻕䠄㻾㼑㼒㼑㼞㼑㼚㼏㼑䠅㻾㼑㼘㼍㼠㼕㼢㼑㻌㻼㼞㼕㼏㼑㻌㼎㼥㻌㻳㼛㼛㼐㼟
㻝㻚㻝

㻝㻚㻜㻡

㻝

㻜㻚㻥㻡

㻜㻚㻥

㻜㻚㻤㻡
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜

㻼㻝㻴䠋㻼㻝㻲

㻼㻞㻴䠋㻼㻞㻲

26㻔䃣㻕㻲㼕㼓㼡㼞㼑㻌㻡 㼆㼑㼞㼛㻙㻼㼞㼛㼒㼕㼠㻌㻼㼞㼛㼐㼡㼏㼠㼕㼢㼕㼠㼥㻌㻯㼡㼠㻙㼛㼒㼒㻌㼎㼥㻌㻵㼚㼐㼡㼟㼠㼞㼥
㻜㻚㻡㻡

㻜㻚㻡

㻜㻚㻠㻡

㻜㻚㻠

㻜㻚㻟㻡
㻝㻚㻞

㻝㻚㻡

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻞㻚㻜㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻔㻮㻷㻕27

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻔㻮㻷㻕㻔䃣㻕㻲㼕㼓㼡㼞㼑㻌㻢 㻼㼞㼕㼏㼑
㻜㻚㻝㻥

㻜㻚㻝㻤

㻜㻚㻝㻣

㻜㻚㻝㻢

㻜㻚㻝㻡

㻜㻚㻝㻠
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻔㻮㻷㻕28

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻔㻮㻷㻕㻲㼕㼓㼡㼞㼑㻌䠓 㻾㼑㼍㼘㻌㻲㼍㼏㼠㼛㼞㻌㻼㼞㼕㼏㼑
㻣

㻢

㻡

㻠
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㼣㼍㼓㼑㻌㼛㼒㻌㼟㼗㼕㼘㼘㼑㼐㻌㼘㼍㼎㼛㼞㻌㼣㼍㼓㼑㻌㼛㼒㻌㼡㼚㼟㼗㼕㼘㼘㼑㼐㻌㼘㼍㼎㼛㼞㻌㼣㼍㼓㼑㻌㼛㼒㻌㼟㼗㼕㼘㼘㼑㼐㻌㼘㼍㼎㼛㼞㻌㻔㻮㻷㻕㻌㼣㼍㼓㼑㻌㼛㼒㻌㼡㼚㼟㼗㼕㼘㼘㼑㼐㻌㼘㼍㼎㼛㼞㻌㻔㻮㻷㻕29㻌㻌㻌㻌㻌㻌㻌㻲㼕㼓㼡㼞㼑㻌㻤㻌㻌㻌㻱㼚㼠㼞㼥㻌㼛㼒㻌㻲㼕㼞㼙㼟㻌㼎㼥㻌㻵㼚㼐㼡㼟㼠㼞㼥㻌

㻢㻜㻜
㻡㻜㻜
㻠㻜㻜
㻟㻜㻜
㻞㻜㻜
㻝㻜㻜
㻜
㻝㻚㻞

㻝㻚㻡

㻌㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻞㻚㻜㻌㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻔㻮㻷㻕㻔䃣㻕㻌㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻔㻮㻷㻕㻔㻯㼛㼙㼜㼛㼟㼕㼠㼕㼛㼚㻕
㻠㻜㻜㻚㻜
㻟㻡㻜㻚㻜
㻟㻜㻜㻚㻜
㻞㻡㻜㻚㻜
㻞㻜㻜㻚㻜
㻝㻡㻜㻚㻜
㻝㻜㻜㻚㻜
㻡㻜㻚㻜
㻜㻚㻜
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜

㻌㻌㻱㼤㼜㼛㼞㼠㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻌㻲㻰㻵㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻌㻰㼛㼙㼑㼟㼠㼕㼏㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻌㻱㼤㼜㼛㼞㼠㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻌㻲㻰㻵㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻌㻰㼛㼙㼑㼟㼠㼕㼏㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞

30

㻔䃣㻕

㻲㼕㼓㼡㼞㼑㻌㻥㻌㻌㻌㻱㼙㼜㼘㼛㼥㼙㼑㼚㼠㻌㼎㼥㻌㻵㼚㼐㼡㼟㼠㼞㼥

㻝㻢㻜㻜
㻝㻠㻜㻜
㻝㻞㻜㻜
㻝㻜㻜㻜
㻤㻜㻜
㻢㻜㻜
㻠㻜㻜
㻞㻜㻜
㻜
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻔㻮㻷㻕㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻔㻮㻷㻕㻔㻯㼛㼙㼜㼛㼟㼕㼠㼕㼛㼚㻕
㻝㻠㻜㻜
㻝㻞㻜㻜
㻝㻜㻜㻜
㻤㻜㻜
㻢㻜㻜
㻠㻜㻜
㻞㻜㻜
㻜
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㻱㼙㼜㼘㼛㼥㼙㼑㼚㼠㻌㼎㼥㻌㻰㼛㼙㼑㼟㼠㼕㼏㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻱㼙㼜㼘㼛㼥㼙㼑㼚㼠㻌㼎㼥㻌㻰㼛㼙㼑㼟㼠㼕㼏㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻱㼙㼜㼘㼛㼥㼙㼑㼚㼠㻌㼎㼥㻌㻲㼛㼞㼑㼕㼓㼚㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻱㼙㼜㼘㼛㼥㼙㼑㼚㼠㻌㼎㼥㻌㻲㼛㼞㼑㼕㼓㼚㻌㻲㼕㼞㼙㼟㻌㼕㼚㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞31㻲㼕㼓㼡㼞㼑㻌㻝㻜 㻾㼑㼍㼘㻌㻵㼚㼏㼛㼙㼑㻌㼎㼥㻌㻵㼚㼐㼡㼟㼠㼞㼥
㻝㻜㻜㻜㻜
㻥㻜㻜㻜
㻤㻜㻜㻜
㻣㻜㻜㻜
㻢㻜㻜㻜
㻡㻜㻜㻜
㻠㻜㻜㻜
㻟㻜㻜㻜
㻞㻜㻜㻜
㻝㻜㻜㻜
㻜
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻝㻌㻔㻮㻷㻕32㻌㼕㼚㼐㼡㼟㼠㼞㼥㻌㻞㻌㻔㻮㻷㻕㻲㼕㼓㼡㼞㼑㻌㻝㻝 㼃㼑㼘㼒㼍㼞㼑
㻝㻢㻜㻜㻜
㻝㻠㻜㻜㻜
㻝㻞㻜㻜㻜
㻝㻜㻜㻜㻜
㻤㻜㻜㻜
㻢㻜㻜㻜
㻠㻜㻜㻜
㻞㻜㻜㻜
㻜
㻝㻚㻞

㻝㻚㻡

㻞㻚㻜
㻔䃣㻕

㻌㼏㼛㼡㼚㼠㼞㼥㻌㻴㻌㼏㼛㼡㼚㼠㼞㼥㻌㻴㻔㻮㻷㻕33