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Strategic Complementarity in Direct Investments

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  • Toshihiro Matsumura

Abstract

The paper investigates a three‐country duopoly model. Two developed countries have large markets and one developing country has a cost advantage. The author finds that strategic complementarity in location choice yields multiple equilibria. One is a cost‐oriented agglomeration of firms in the developing country and the other is a market‐oriented equilibrium where each firm locates in its developed home country. Also, private incentives for the cost‐oriented location are excessive (resp. insufficient) from the viewpoint of world welfare if firms choose their locations non‐cooperatively (resp. cooperatively).

Suggested Citation

  • Toshihiro Matsumura, 2004. "Strategic Complementarity in Direct Investments," Review of Development Economics, Wiley Blackwell, vol. 8(4), pages 583-596, November.
    • Handle: RePEc:bla:rdevec:v:8:y:2004:i:4:p:583-596
    DOI: 10.1111/j.1467-9361.2004.00254.x
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    References listed on IDEAS

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    1. Toshihiro Matsumura, 2003. "Consumer‐benefiting exclusive territories," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(4), pages 1007-1025, November.
    2. Ngo, Van Long & Soubeyran, Antoine, 1997. "Cost heterogeneity, industry concentration and strategic trade policies," Journal of International Economics, Elsevier, vol. 43(1-2), pages 207-220, August.
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    8. Noriaki Matsushima, 2001. "Horizontal Mergers and Merger Waves in a Location Model," Australian Economic Papers, Wiley Blackwell, vol. 40(3), pages 263-286, September.
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    11. Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    12. Sajal Lahiri & Yoshiyasu Ono, 1999. "R&D Subsidies Under Asymmetric Duopoly: A Note," The Japanese Economic Review, Japanese Economic Association, vol. 50(1), pages 104-111, March.
    13. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
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    15. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
    16. repec:dpr:wpaper:0456 is not listed on IDEAS
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    Cited by:

    1. Dong, Quan & Bárcena-Ruiz, Juan Carlos, 2015. "Does investment in capacity encourage FDI?," Economic Modelling, Elsevier, vol. 51(C), pages 58-64.
    2. Toshihiro Matsumura & Daisuke Shimizu, 2008. "A Noncooperative Shipping Cournot Duopoly With Linear‐Quadratic Transport Costs And Circular Space," The Japanese Economic Review, Japanese Economic Association, vol. 59(4), pages 498-518, December.
    3. Liu, Yi & Matsumura, Toshihiro, 2024. "Payoff interdependence and welfare-improving location diversification," MPRA Paper 120495, University Library of Munich, Germany.
    4. Toshihiro Matsumura & Daisuke Shimizu, 2015. "Endogenous Flexibility In The Flexible Manufacturing System," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 1-13, January.

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