Multilateral Trade Liberalisation, Foreign Direct Investment and the Volume of World Trade
AbstractA paradox in international trade is that multilateral trade liberalisation has resulted in increases in both the volume of world trade and the amount of foreign direct investment (FDI). This note presents a Cournot duopoly model with two regions, each consisting of two countries, and with an inter-regional transport cost. It is shown that multilateral trade liberalisation may lead firms to switch from exporting to undertaking export-platform FDI when the interregional transport cost is high. Also, when the inter-regional transport cost is high, the switch to FDI leads to an increase in the volume of world trade in this industry.
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Bibliographic InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2010/4.
Length: 11 pages
Date of creation: Jun 2010
Date of revision:
Publication status: Forthcoming in Economics Letters
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More information through EDIRC
Trade Liberalisation; Foreign Direct Investment; Cournot oligopoly;
Other versions of this item:
- Collie, David R., 2011. "Multilateral trade liberalisation, foreign direct investment and the volume of world trade," Economics Letters, Elsevier, vol. 113(1), pages 47-49, October.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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