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Strategic Foreign Direct Investment in Vertically Related Markets

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  • JOTA ISHIKAWA
  • EIJI HORIUCHI

Abstract

By using a simple North-South trade model with vertically related markets, this paper draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether the North firm strategically undertakes FDI in the presence of technology spillovers depends on the South firm's capacity to absorb the North's technology. When capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers. We also explore the South's policy measures to attract FDI. Our analysis suggests that the South's very tight intellectual property rights (IPR) protection may benefit neither side.
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Suggested Citation

  • Jota Ishikawa & Eiji Horiuchi, 2012. "Strategic Foreign Direct Investment in Vertically Related Markets," The Economic Record, The Economic Society of Australia, vol. 88(281), pages 229-242, June.
  • Handle: RePEc:bla:ecorec:v:88:y:2012:i:281:p:229-242
    DOI: j.1475-4932.2012.00796.x
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    File URL: http://hdl.handle.net/10.1111/j.1475-4932.2012.00796.x
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    Cited by:

    1. Shohei Yoshida, 2015. "Multiproduct competition in vertically related industries," ISER Discussion Paper 0935, Institute of Social and Economic Research, Osaka University.
    2. Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2017. "Strategic corporate social responsibility by a multinational firm," DICE Discussion Papers 246, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. repec:voj:journl:v:63:y:2016:i:3:p:313-323 is not listed on IDEAS

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