Temporary Partnerships as an Information Transmission Mechanism: Foreign Investment in Emerging Markets
AbstractAsymmetric inforation and fear of acquiring a “lemon” may explain the paucity of foreign investment in emerging market economies. If investors are uncertain about the profitability of investments, intrinsically inefficient, temporary partnerships or joint ventures may serve as mechanisms through which information is transmitted. Temporary partnerships with joint investments by the domestic firm and the foreign investor, together with a buy-out option to the investor, can be used to separate good and bad investment prospects in equilibrium. However, non-revealing equilibria may exist. Implications for foreign direct investment are traced and briefly related to the experience of transition economies.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1998-13.
Length: 25 pages
Date of creation: Jul 1998
Date of revision:
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investment; complementary assets; partnerships; joint ventures and licensing; costly signaling;
Find related papers by JEL classification:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- F2 - International Economics - - International Factor Movements and International Business
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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