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Location of foreign direct investment in a regional integration area

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  • José Pedro Pontes

    ()
    (Technical University of Lisbon)

Abstract

In a regional integration area two processes take place simultaneously: the fall of trade costs and the regional convergence of per capita of the countries. The impact of these trends upon the location of the productive activity is examined through a static two person noncooperative game where each player(firm)selects one of three spatial strategies: to locate a single plant in the large country to locate a single plant in the small country and to settle a multiplant firm in the two countries. It can be inferred that to locate a plant in the small country is always a dominated strategy. The degree of symmetry in market size in the two countries appears as the major factor of the feasibility of production in the small peripheral economy.On the other hand, the fall of trade costs has a sensible impact upon the location of production only for intermediate levels of regional convergence. The "tariff jumping" argument for FDI has a limited field of application.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 18 (2001)
Issue (Month): 5 ()
Pages: 1-9

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Handle: RePEc:ebl:ecbull:eb-01r10002

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  1. Ekholm, Karolina & Forslid, Rikard, 1997. "Agglomeration in a Core-Periphery Model with Vertically and Horizontally Integrated Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1607, C.E.P.R. Discussion Papers.
  2. Eaton, B Curtis & Lipsey, Richard G, 1975. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 42(1), pages 27-49, January.
  3. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  4. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 335-356, February.
  5. Baldwin, Richard E. & Ottaviano, Gianmarco I. P., 2001. "Multiproduct multinationals and reciprocal FDI dumping," Journal of International Economics, Elsevier, Elsevier, vol. 54(2), pages 429-448, August.
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Cited by:
  1. Köller, Mareike, 2006. "Ausländische Direktinvestitionen in Irland: Eine theoriegestützte Analyse," Center for European, Governance and Economic Development Research Discussion Papers 58, University of Goettingen, Department of Economics.
  2. Köller, Mareike, 2006. "Ausländische Direktinvestitionen in Irland: Eine theoriegestützte Analyse," Center for European, Governance and Economic Development Research Discussion Papers 58, University of Goettingen, Department of Economics.

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