The paper deals with a location game involving two symmetric firms. The players choose strategies in a spatial setting made up by two asymmetric countries,where the smallest country has a labour cost advantage. Determination of equilibrium location patterns enables to assess under what conditions both forms of foreign direct investment (horizontal and vertical) will take place in terms of a set of parameters (namely market size, relative size of the small country, and extent of its cost advantage). The firms interact through input transactions that bring about multiplicity of equilibria. An application to the evolution of the Portuguese car industry is performed.
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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number
2000/02.
Length: Date of creation: 2000 Date of revision: Handle: RePEc:ise:isegwp:wp22000
Contact details of provider: Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL Web page: http://www.iseg.utl.pt/departamentos/economia/
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Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business R30 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - General C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games