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Market Entry and Foreign Direct Investment

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Author Info
Stahler, Frank (University of Kiel)
Abstract

This paper discusses the impact of foreign direct investment (FDI) on market entry and welfare. It assumes that firms may enter markets in the first period as national firms only. In the second period, however, FDI is possible. The paper demonstrates that FDI reduces market entry because equilibrium profits in the second period decline with a decrease in the fixed cost of FDI. Therefore, compared to a trade regime without any FDI, prices rise in the first period but decline in the second period. The paper shows, however, that FDI will unambiguously improve the discounted sum of consumer surplus.

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File URL: http://repec.org/res2003/Stahler.pdf
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Publisher Info
Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 191.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:191

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Web page: http://www.res.org.uk/society/annualconf.asp
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Related research
Keywords: foreign direct investment; multinational enterprises; imperfect competition; free entry;

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

This paper has been announced in the following NEP Reports:

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This page was last updated on 2009-11-25.

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