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Endogenous Market Structures and the Gains from Foreign Direct Investment

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  • De Santis, Roberto A

    (European Central Bank)

  • Frank Stahler

    (University of Kiel)

Abstract

This paper discusses the gains from liberalizing foreign direct investment (FDI) in a two country setting with endogenous market structures. Two different scenarios are investigated. In the first scenario, headquarters are run in the domestic country only and the FDI regime is compared to the intersectoral trade case. If multinational and national firms coexist, market concentration occurs and FDI is welfare improving for the foreign country, but welfare declining for the domestic country. In the second scenario, headquarters are run in both countries and the FDI regime is compared to the intraindustry trade case. This regime switch leads to mutual welfare gains, irrespective of market structure effects.

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Bibliographic Info

Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 56.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:56

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  1. Bruce A. Blonigen, 1999. "In Search of Substitution Between Foreign Production and Exports," NBER Working Papers 7154, National Bureau of Economic Research, Inc.
  2. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, January.
  3. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
  4. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  5. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
  6. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
  7. James R. Markusen, 1998. "Multinational Firms, Location and Trade," The World Economy, Wiley Blackwell, vol. 21(6), pages 733-756, 08.
  8. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  9. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  10. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
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Cited by:
  1. Elberfeld Walter & Götz Georg & Stähler Frank, 2005. "Vertical Foreign Direct Investment, Welfare, and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, February.
  2. Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," Discussion Papers in Economics 893, University of Munich, Department of Economics.
  3. Roberto A. De Santis & Frank Stähler, 2009. "Foreign Direct Investment and Environmental Taxes," German Economic Review, Verein für Socialpolitik, vol. 10, pages 115-135, 02.
  4. De Santis, Roberto A. & Ehling, Paul, 2007. "Do international portfolio investors follow firms’ foreign investment decisions?," Working Paper Series 0815, European Central Bank.
  5. Stahler, Frank, 2006. "Market entry and foreign direct investment," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 335-347, March.
  6. De Santis, Roberto A. & Anderton, Robert & Hijzen, Alexander, 2004. "On the determinants of euro area FDI to the United States: the knowledge- capital-Tobin's Q framework," Working Paper Series 0329, European Central Bank.
  7. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
  8. Nishiyama, Hiroyuki & Yamaguchi, Masao, 2010. "Foreign direct investment, international trade, and firm heterogeneity," Economic Modelling, Elsevier, vol. 27(1), pages 184-195, January.

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