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FDI in Post-Production Services and Product Market Competition

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  • Ishikawa, Jota
  • Morita, Hodaka
  • Mukunoki, Hiroshi

Abstract

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. A foreign firm faces a higher cost to perform such services than its domestic rival because of the lack of proximity to customers. We explore an international duopoly model in which a foreign firm can reduce its cost for post-production services by foreign direct investment (FDI), or alternatively can outsource such services to its domestic rival. Trade liberalization, if not accompanied by liberalization of service FDI, can hurt domestic consumers and decrease world welfare, but the negative welfare impacts can be mitigated and eventually turned into positive ones as service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is limited compared to the substantial progress already made in trade liberalization.

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Bibliographic Info

Paper provided by Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University in its series CCES Discussion Paper Series with number 1.

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Length: 40 p.
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:hit:ccesdp:1

Note: First Version: December, 2006; This Version: November 10, 2008
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Keywords: post-production services; trade liberalization; FDI; outsourcing; international oligopoly;

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Citations

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Cited by:
  1. Arijit Mukherjee & Leonard F.S. Wang & Yingyi Tsai, . "Governance and foreign direct investment: is there a two-way relationship?," Discussion Papers 11/02, University of Nottingham, School of Economics.
  2. Dibyendu Maiti & Arijit Mukherjee, . "Governance, Foreign Direct Investment and Domestic Welfare," Discussion Papers 10/27, University of Nottingham, GEP.
  3. ISHIKAWA Jota & OKUBO Toshihiro, 2013. "Trade and Industrial Policy Subtleties with International Licensing," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13050, Research Institute of Economy, Trade and Industry (RIETI).
  4. KOMORIYA Yoshimasa, 2014. "How the Movement of Natural Persons Agreement Could Fuel FTAs," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 14041, Research Institute of Economy, Trade and Industry (RIETI).
  5. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2010. "FDI in Post-Production Services and Product Market Competition," CCES Discussion Paper Series, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University 29, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  6. TAKECHI Kazutaka, 2008. "International Strategic Alliances for Local Market Entry: Direct Launches versus Marketing Alliances in Pharmaceuticals," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 08022, Research Institute of Economy, Trade and Industry (RIETI).

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