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Location for Foreign Direct Investment in Vertically Related Markets

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  • Chrysovalantou Milliou

Abstract

This paper studies a multinational enterprise's (MNE's) location decision in a vertically related market with endogenous vertical technology transfer (VTT). We show that, even though VTT is more costly in a less developed country, an MNE can transfer more technology there than in a developed country (DC). When the opposite occurs, the MNE sometimes locates in a DC where, although it faces stronger competition, it obtains the input at better terms. Therefore, by arguing that the MNE's decision can be crucially affected by the upstream market's outcomes, an alternative explanation is provided for the commonly observed foreign direct investment (FDI) in DCs.

Suggested Citation

  • Chrysovalantou Milliou, 2014. "Location for Foreign Direct Investment in Vertically Related Markets," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 326-341, May.
  • Handle: RePEc:bla:reviec:v:22:y:2014:i:2:p:326-341
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    File URL: http://hdl.handle.net/10.1111/roie.12106
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    Cited by:

    1. Chrysovalantou Milliou, 2014. "Location for Foreign Direct Investment in Vertically Related Markets," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 326-341, May.
    2. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    3. Chrysovalantou Milliou & Apostolis Pavlou, 2014. "Foreign Direct Investment Modes and Local Backward Linkages," CESifo Working Paper Series 4623, CESifo.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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