We introduce incomplete outsourcing contracts in an otherwise standard model of MNEs based on the trade-off between proximity and concentration. This has implications for the choice between export and FDI and the way this is affected by the distance between source and host countries. In particular, incomplete outsourcing contracts can account for the observed emergence of FDIs in large markets not only when trade costs are large but also when trade costs are small. Moreover, contractual incompleteness alters someway dramatically the choice of supply mode made when contracts are complete.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4041.
Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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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.)
Dalia Marin & Verdier Thierry, 2007.
"Power in the Multinational Corporation in Industry Equilibrium,"
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209, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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