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Distance and FDI when Contracts are Incomplete

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  • Gianmarco I.P. Ottaviano

    (Università Bocconi; GIIS, Geneva; CEPR)

  • Alessandro Turrini

    (University of Bergamo; UNCTAD; CEPR)

Abstract

We introduce incomplete outsourcing contracts in an otherwise standard model of MNEs based on the trade-off between proximity and concentration. This has both positive and normative implications. As to the former, 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. As to the latter implications, contractual incompleteness alters someway dramatically the choice of supply mode made when contracts are complete.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 165.

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Date of creation: 01 Nov 2002
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Handle: RePEc:csl:devewp:165

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Keywords: Foreign direct investment; international trade costs; incomplete;

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  2. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
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Cited by:
  1. Valeria Gattai, 2005. "Dissipation of Knowledge and the Boundaries of the Multinational Enterprise," Working Papers 2005.121, Fondazione Eni Enrico Mattei.
  2. Valeria Gattai, 2005. "From the Theory of the Firm to FDI and Internalisation: A Survey," Working Papers 2005.51, Fondazione Eni Enrico Mattei.
  3. Valeria Gattai, 2013. "International outsourcing versus FDI under contractual incompleteness," International Review of Economics, Springer, vol. 60(2), pages 157-186, June.
  4. Marin, Dalia & Verdier, Thierry, 2007. "Power in the Multinational Corporation in Industry Equilibrium," CEPR Discussion Papers 6341, C.E.P.R. Discussion Papers.
  5. Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics.
  6. Arti Grover, 2010. "Outsourcing Versus Foreign Direct Investment: A Welfare Analysis," Working Papers id:3010, eSocialSciences.
  7. Marcella Nicolini, 2007. "Institutions and Offshoring Decision," CESifo Working Paper Series 2074, CESifo Group Munich.

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