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FDI in Post-Production Services and Product Market Competition

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Author Info

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

Abstract

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign .rm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This .nding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited.

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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 29.

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Length: 28, [2] p.
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:hit:ccesdp:29

Note: First Version: December, 2006; This Version: April, 2010
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Keywords: post-production services; rade liberalization; FDI; outsourcing; international oligopoly;

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References

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  1. Horst Raff & Marc von der Ruhr, 2001. "Foreign Direct Investment in Producer Services: Theory and Empirical Evidence," CESifo Working Paper Series 598, CESifo Group Munich.
  2. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
  3. Stephen S. Golub, 2003. "Measures Of Restrictions on Inward Foreign Direct Investment for OECD Countries," OECD Economics Department Working Papers 357, OECD Publishing.
  4. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2010. "FDI in post-production services and product market competition," Journal of International Economics, Elsevier, vol. 82(1), pages 73-84, September.
  5. Antras, Pol & Helpman, Elhanan, 2004. "Global Sourcing," Scholarly Articles 3196327, Harvard University Department of Economics.
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  8. Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society.
  9. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  10. Antras, Pol, 2005. "Incomplete Contracts and the Product Cycle," Scholarly Articles 3196324, Harvard University Department of Economics.
  11. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  12. Martin Richardson, . "Trade Policy and Access to Retail Distribution," EPRU Working Paper Series 97-23, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  13. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 109-24, February.
  14. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 729-761, May.
  15. Konan, Denise Eby & Maskus, Keith E., 2006. "Quantifying the impact of services liberalization in a developing country," Journal of Development Economics, Elsevier, vol. 81(1), pages 142-162, October.
  16. Sanna-Randaccio, Francesca, 1996. "New protectionism and multinational companies," Journal of International Economics, Elsevier, vol. 41(1-2), pages 29-51, August.
  17. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2001. "Trade Liberalization and Strategic Outsourcing," Discussion Papers 2001-04, Graduate School of Economics, Hitotsubashi University.
  18. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July.
  19. Clement Yuk Pang Wong & Jinhui Wu & Anming Zhang, 2006. "A Model of Trade Liberalization in Services," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 148-168, 02.
  20. Roy, Martin & Marchetti, Juan & Lim, Hoe, 2007. "Services liberalization in the new generation of preferential trade agreements (PTAs): how much further than the GATS?," World Trade Review, Cambridge University Press, vol. 6(02), pages 155-192, July.
  21. repec:hrv:faseco:4784029 is not listed on IDEAS
  22. Sharkey, William W. & Sibley, David S., 1993. "A Bertrand model of pricing and entry," Economics Letters, Elsevier, vol. 41(2), pages 199-206.
  23. Stephen S. Golub, 2003. "Measures of Restrictions on Inward Foreign Direct Investment for OECD Countries," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 85-116.
  24. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
  25. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
  26. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
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Citations

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Cited by:
  1. TAKECHI Kazutaka, 2008. "International Strategic Alliances for Local Market Entry: Direct Launches versus Marketing Alliances in Pharmaceuticals," Discussion papers 08022, Research Institute of Economy, Trade and Industry (RIETI).
  2. ISHIKAWA Jota & OKUBO Toshihiro, 2013. "Trade and Industrial Policy Subtleties with International Licensing," Discussion papers 13050, Research Institute of Economy, Trade and Industry (RIETI).
  3. Dibyendu Maiti & Arijit Mukherjee, . "Governance, Foreign Direct Investment and Domestic Welfare," Discussion Papers 10/27, University of Nottingham, GEP.
  4. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2008. "FDI in Post-Production Services and Product Market Competition," CCES Discussion Paper Series 1, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  5. 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.

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