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Trade costs, FDI incentives, and the intensity of price competition

Author

Listed:
  • Giuseppe Francesco Gori
  • Luca Lambertini
  • Alessandro Tampieri

Abstract

type="main" xml:lang="en"> Contrary to theoretical predictions, empirical evidence shows that an increase in trade liberalization causes an increase in foreign direct investment. We propose an explanation for this apparent puzzle by exploiting Dastidar's approach, which delivers a continuum of Bertrand–Nash equilibria ranging above marginal cost pricing. We show that allowing for softer price competition may indeed more than offset the standard effect generated by a decrease in trade costs, thereby restoring foreign direct investment incentives.

Suggested Citation

  • Giuseppe Francesco Gori & Luca Lambertini & Alessandro Tampieri, 2014. "Trade costs, FDI incentives, and the intensity of price competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(4), pages 371-385, December.
    • Handle: RePEc:bla:ijethy:v:10:y:2014:i:4:p:371-385
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    Cited by:

    1. Flavio Delbono & Luca Lambertini, 2022. "Optimal emission taxation and the Porter hypothesis under Bertrand competition," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(3), pages 755-765, September.
    2. Kazuhiro Takauchi & Tomomichi Mizuno & Qing Hu, 2025. "Rules of origin and regional upstream competition," Discussion Papers 2519, Graduate School of Economics, Kobe University.
    3. Kazuhiro Takauchi & Tomomichi Mizuno, 2022. "Endogenous transport price, R&D spillovers, and trade," The World Economy, Wiley Blackwell, vol. 45(5), pages 1477-1500, May.
    4. Kangsik Choi & Seonyoung Lim, 2023. "Sequential tariffs with increasing marginal costs," Manchester School, University of Manchester, vol. 91(4), pages 336-360, July.
    5. Kazuhiro Takauchi & Tomomichi Mizuno, 2019. "Is competition in the transport industry bad?A welfare analysis of R&D with inter-regional transportation," Discussion Papers 1910, Graduate School of Economics, Kobe University.
    6. F. Delbono & L. Lambertini, 2015. "Bertrand versus Cournot with Convex Variable Costs," Working Papers wp994, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Flavio Delbono & Gemma Dipoppa & Luca Lambertini & Carlo Reggiani, 2017. "A Single Espresso, Please! Rationalizing Espresso Price Dispersion Across Italian Cities," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 465-478, December.
    8. Delbono, Flavio & Lambertini, Luca, 2016. "Ranking Bertrand, Cournot and supply function equilibria in oligopoly," Energy Economics, Elsevier, vol. 60(C), pages 73-78.
    9. Mumtaz Hussain Shah, 2017. "Inward FDI in East Asian & Pacific Developing Countries due to WTO Led Liberalisation," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(2), pages 1-20, June.
    10. Tomomichi Mizuno & Kazuhiro Takauchi, 2020. "Optimal Export Policy With Upstream Price Competition," Manchester School, University of Manchester, vol. 88(2), pages 324-348, March.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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