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Foreign Direct Investment and the Single Market

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Neary, J Peter

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Abstract

This Paper extends the theory of multinational corporations, identifying three distinct influences of internal trade liberalization by a group of countries on the level and pattern of inward foreign direct investment (FDI). First, the tariff-jumping motive encourages plant consolidation. Second, the export platform motive favours FDI with only a single union plant relative to exporting, and may induce a firm that has never exported to invest. Finally, reduced internal tariffs increase competition from domestic firms, which dilutes the other motives and may induce a ‘Fortress Europe’ outcome of multinationals leaving union markets even though external tariffs are unchanged.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3419.

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Date of creation: Jun 2002
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Handle: RePEc:cpr:ceprdp:3419

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Related research
Keywords: foreign direct investment; market integration; multinational corporations; single market;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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References listed on IDEAS
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  1. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
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  3. Neven, D. & Siotis, G., 1996. "Technology sourcing and FDI in the EC: An empirical evaluation," International Journal of Industrial Organization, Elsevier, vol. 14(5), pages 543-560, July. [Downloadable!] (restricted)
    Other versions:
  4. Kimmel, Sheldon, 1992. "Effects of Cost Changes on Oligopolists' Profits," Journal of Industrial Economics, Blackwell Publishing, vol. 40(4), pages 441-49, December. [Downloadable!] (restricted)
  5. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February. [Downloadable!] (restricted)
  6. Rowthorn, R E, 1992. "Intra-industry Trade and Investment under Oligopoly: The Role of Market Size," Economic Journal, Royal Economic Society, vol. 102(411), pages 402-14, March. [Downloadable!] (restricted)
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  8. Pain, Nigel, 1997. "Continental Drift: European Integration and the Location of U.K. Foreign Direct Investment," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 65(0), pages 94-117, Supplemen.
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  9. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December. [Downloadable!] (restricted)
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  14. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December. [Downloadable!] (restricted)
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  15. Venables, Anthony J., 1990. "International capacity choice and national market games," Journal of International Economics, Elsevier, vol. 29(1-2), pages 23-42, August. [Downloadable!] (restricted)
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  16. Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-83, November.
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  17. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Blackwell Publishing, vol. 8(2), pages 360-71, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ponce, Aldo Fernando, 2006. "Openness and Foreign Direct Investment: The Role of Free Trade Agreements in Latin America," MPRA Paper 4187, University Library of Munich, Germany, revised 01 Jul 2007. [Downloadable!]
  2. Mariam Camarero & Cecilio Tamarit, 2003. "Estimating exports and imports demand for Manufactured goods: The role of FDI," European Economy Group Working Papers 22, European Economy Group. [Downloadable!]
  3. Mareike Köller, 2006. "Ausländische Direktinvestitionen in Irland - eine theoriegestützte Analyse," cege – Center for European, Governance and Economic Development Research Discussion Papers 58, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  4. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  5. Fabrice Defever, 2006. "Functional fragmentation and the location of multinational firms in the enlarged Europe," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118808_v1, HAL. [Downloadable!]
  6. Frank Barry & Aoife Hannan, 2002. "Product Characteristics and the Growth of FDI," Working Papers 200217, School Of Economics, University College Dublin. [Downloadable!]
  7. Siedschlag, Iulia & Smith, Donal & Turcu, Camelia & Zhang, Xiaoheng, 2009. "What Determines the Attractiveness of the European Union to the Location R&D Multinational Firms?," Papers DYNREG46, Economic and Social Research Institute (ESRI). [Downloadable!]
  8. Yushi Yoshida, 2007. "Export-Platform Investment with Proximity and Product Differentiation: Empirical Evidence from Port-Level International Trade," Discussion Papers 28, Kyushu Sangyo University, Faculty of Economics. [Downloadable!]
  9. Facundo Albornoz, 2007. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers 05-15R, Department of Economics, University of Birmingham. [Downloadable!]
    Other versions:
  10. Kind, Hans Jarle & Schjelderup, Guttorm & Ulltveit-Moe, Karen-Helene, 2004. "Trade and Multinationals: The Effect of Economic Integration on Taxation and Tax Revenue," CEPR Discussion Papers 4312, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Roberto Basile & Davide Castellani & Antonello Zanfei, 2007. "Location choices of multinational firms in Europe: the role of EU cohesion policy," Quaderni del Dipartimento di Economia, Finanza e Statistica 32/2007, Università di Perugia, Dipartimento Economia, Finanza e Statistica. [Downloadable!]
    Other versions:
  12. Thede, Susanna & Lindvert, Markus, 2009. "Exploring Determinants of the Firm Boundary for Swedish Multinationals," Working Papers 2009:2, Lund University, Department of Economics. [Downloadable!]
  13. J Peter Neary, 2005. "Trade Costs and Foreign Direct Investment," Working Papers 200512, School Of Economics, University College Dublin. [Downloadable!]
    Other versions:
  14. Yushi Yoshida, 2005. "Outsourcing of Intermediate Manufacturing Products in Asian Economies," Discussion Papers 21, Kyushu Sangyo University, Faculty of Economics. [Downloadable!]
  15. Frank Barry & Aoife Hannan, 2003. "Product Characteristics and the Growth of FDI," Working Papers 200308, School Of Economics, University College Dublin. [Downloadable!]
  16. Collie, David R., 2009. "Tacit Collusion over Foreign Direct Investment under Oligopoly," Cardiff Economics Working Papers E2009/8, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
  17. Fabrice Defever, 2006. "Functional fragmentation and the location of multinational firms in the enlarged Europe," Cahiers de la Maison des Sciences Economiques bla06052, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
    Other versions:
  18. Hamid Beladi & Sugata Marjit & Avik Chakrabarti, . "Tariff Jumping and Joint Ventures," Working Papers 0002, College of Business, University of Texas at San Antonio. [Downloadable!]
    Other versions:
  19. Jose Pedro Pontes, 2006. "FDI and trade: complements and substitutes," Working Papers 2006/03, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  20. Stephen Pavelin & Frank Barry, 2005. "The Single Market and the Geographical Diversification of Leading Firms in the EU," The Economic and Social Review, Economic and Social Studies, vol. 36(1), pages 1–17. [Downloadable!]
    Other versions:
  21. Miren Lafourcade & Elisenda Paluzie Hernandez, 2005. "European Integration, FDI and the Internal Geography of Trade: Evidence from Western European Border Regions," Working Papers in Economics 145, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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