Distance and Foreign Direct Investment when Contracts are Incomplete
AbstractWe introduce incomplete contracts in a model where multinational firms from a certain country ("North") can decide to serve a foreign market ("South") through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs that could be supplied either by northern suppliers or by suppliers located in South. Intermediate sourcing contracts are complete in North but not in South. Were southern contracts also complete, FDI would arise only when trade barriers are high enough. Incomplete contracts in South generate, instead, a non-linear relation between trade barriers and FDI as foreign investment emerges also when trade barriers are low enough. The reason is the positive effect that low trade barriers have on the bargaining power of final producers with respect to their southern suppliers. (JEL: F23, F12) (c) 2007 by the European Economic Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by MIT Press in its journal Journal of the European Economic Association.
Volume (Year): 5 (2007)
Issue (Month): 4 (06)
Contact details of provider:
Web page: http://www.mitpressjournals.org/jeea
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Spiros Bougheas & Holger Görg, .
"Organizational Forms for Global Engagement of Firms,"
08/33, University of Nottingham, GEP.
- Spiros Bougheas & Holger Görg, 2008. "Organizational forms for global engagement of firms," Kiel Working Papers 1448, Kiel Institute for the World Economy.
- Mugele, Christian & Schnitzer, Monika, 2006.
"Organization of Multinational Activities and Ownership Structure,"
CEPR Discussion Papers
5592, C.E.P.R. Discussion Papers.
- Mugele, Christian & Schnitzer, Monika, 2008. "Organization of multinational activities and ownership structure," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1274-1289, November.
- Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," Discussion Papers in Economics 893, University of Munich, Department of Economics.
- Mugele, Christian & Schnitzer, Monika, 2008. "Organization of multinational activities and ownership structure," Munich Reprints in Economics 19200, University of Munich, Department of Economics.
- Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 98, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Alireza Naghavi & Julia Spies & Farid Toubal, 2013. "IPR, Product Complexity and the Organization of Multinational Firms," Working Papers 2013-31, CEPII research center.
- Alireza Naghavi & Julia Spies & Farid Toubal, 2013.
"Intellectual Property Rights, Product Complexity, and the Organization of Multinational Firms,"
CESifo Working Paper Series
4430, CESifo Group Munich.
- A. Naghavi & J. Spies & F. Toubal, 2011. "Intellectual Property Rights, Product Complexity, and the Organization of Multinational Firms," Working Papers wp773, Dipartimento Scienze Economiche, Universita' di Bologna.
- Arti Grover, 2008. "Vertical FDI versus Outsourcing: A Welfare Comparison from the Perspective of the Host Country," DEGIT Conference Papers c013_009, DEGIT, Dynamics, Economic Growth, and International Trade.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.