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Partial Collusion and Foreign Direct Investment

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Abstract

We show that the static duopoly model in which firms choose between exporting and foreign direct investment is often a prisoners' dilemma game in which a switch from exporting to foreign direct investment reduces profits. By contrast, we show that when the game is repeated there is a range of parameters for which the firms can partially collude by choosing to export rather than invest. In this range, a reduction in export costs may undermine the partial collusion, causing a switch from export to investment.

Suggested Citation

  • Collie, David R. & Norman, George, 2013. "Partial Collusion and Foreign Direct Investment," Cardiff Economics Working Papers E2013/9, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2013/9
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    More about this item

    Keywords

    Foreign Direct Investment; Trade Liberalization; Partial Collusion;
    All these keywords.

    JEL classification:

    • 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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