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Endogenous Market Structure and the Gains from Foreign Direct Inverstment

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Author Info

  • Roberto A. De Santis
  • Frank Stähler

Abstract

This paper discusses the gains from foreign direct investment (FDI) in a two country setting with endogenous markets structures under two alternative locations for the oligopolistic industry. If the oligopolistic industry is located in the domestic country only, we show that market concentration occurs if national and multinational firms coexist. In this case, FDI is welfare improving for the foreign country, but welfare declining for the domestic country. If only multinational firms are competitive, the impact on market structure and the welfare of the domestic country is indeterminate, whereas the welfare of the foreign country improves. By contrast, if the oligopolistic industry is located in both countries' then FDI compared to intraindustry trade leads to mutual welfare gains.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 958.

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Length: 22 pages
Date of creation: Nov 1999
Date of revision:
Handle: RePEc:kie:kieliw:958

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Keywords: Foreign direct investment; Multinational enterprises; Imperfect competition; Welfare.;

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References

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  1. 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.
  2. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, Elsevier, vol. 11(1), pages 1-14, February.
  3. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, Elsevier, vol. 46(2), pages 183-203, December.
  4. Bruce A. Blonigen, 1999. "In Search of Substitution Between Foreign Production and Exports," NBER Working Papers 7154, National Bureau of Economic Research, Inc.
  5. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  6. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(4), pages 694-707, November.
  7. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, Elsevier, vol. 16(3-4), pages 205-226, May.
  8. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, Elsevier, vol. 32(1-2), pages 109-129, February.
  9. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  10. James R. Markusen, 1998. "Multinational Firms, Location and Trade," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 21(6), pages 733-756, 08.
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Citations

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Cited by:
  1. De Santis, Roberto A. & Ehling, Paul, 2007. "Do international portfolio investors follow firms’ foreign investment decisions?," Working Paper Series, European Central Bank 0815, European Central Bank.
  2. De Santis, Roberto A. & Stähler, Frank, 2008. "Foreign direct investment and environmental taxes," Working Paper Series, European Central Bank 0921, European Central Bank.
  3. Georg Götz & Walter Elberfeld & Frank Stähler, 2002. "Vertical foreign direct investment, welfare, and employment," Vienna Economics Papers, University of Vienna, Department of Economics 0213, University of Vienna, Department of Economics.
  4. Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 98, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Stähler, Frank, 2004. "Market entry and foreign direct investment," Center for European, Governance and Economic Development Research Discussion Papers 22, University of Goettingen, Department of Economics.
  6. Nishiyama, Hiroyuki & Yamaguchi, Masao, 2010. "Foreign direct investment, international trade, and firm heterogeneity," Economic Modelling, Elsevier, Elsevier, vol. 27(1), pages 184-195, January.
  7. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
  8. 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, European Central Bank 0329, European Central Bank.
  9. repec:got:cegedp:22 is not listed on IDEAS

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