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Foreign Direct Investment and the Single Market

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  • Neary, J Peter

Abstract

This paper extends the theory of multinational corporations, identifying three distinct influences of internal trade liberalization by a group of countries on the level and pattern of inward foreign direct investment (FDI). First, the tariff jumping motive encourages plant consolidation. Second, the export platform motive favours FDI with only a single union plant relative to exporting, and may induce a firm which has never exported to invest. Finally, reduced internal tariffs increase competition from domestic firms, which dilutes the other motives and may induce a "Fortress Europe" outcome of multinationals leaving union markets even though external tariffs are unchanged. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 70 (2002)
Issue (Month): 3 (June)
Pages: 291-314

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Handle: RePEc:bla:manchs:v:70:y:2002:i:3:p:291-314

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  1. J Peter Neary, 2001. "Foreign Competition and Wage Inequality," Working Papers 200102, School Of Economics, University College Dublin.
  2. Jingang Zhao, 1999. "A Characterization of the Negative Welfare Effects of Cost Reduction in Cournot Oligopoly," Working Papers 99-06, Ohio State University, Department of Economics.
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  17. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
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