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Does North–South Integration Affect Multinational Firms’ Strategies?

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  • Sylvie Montout
  • Habib Zitouna

Abstract

This paper aims to develop a theoretical model that shows how a firm's decision to make a foreign direct investment is influenced by a North–South regional economic integration. Our results suggest that tariff‐jumping and export‐platform strategies depend on a tradeoff between variable trade costs and fixed costs, in addition to wage differences. Furthermore, insiders may affect the strategic location of outsiders by dampening the market accessibility advantages induced by the trade liberalization process, which results in an eviction of the outsiders from the area. This effect, however, depends heavily on the level of fixed costs. Indeed, a decrease in the costs of implanting in the low‐wage country gives the insiders a first‐mover advantage that allows them to later evict their competitors.

Suggested Citation

  • Sylvie Montout & Habib Zitouna, 2005. "Does North–South Integration Affect Multinational Firms’ Strategies?," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 485-500, August.
    • Handle: RePEc:bla:reviec:v:13:y:2005:i:3:p:485-500
    DOI: 10.1111/j.1467-9396.2005.00519.x
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    References listed on IDEAS

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    1. Blomström, Magnus & Kokko, Ari, 1997. "Regional Integration and Foreign Direct Investment," CEPR Discussion Papers 1659, C.E.P.R. Discussion Papers.
    2. Bruce A. Blonigen & Robert C. Feenstra, 1997. "Protectionist Threats and Foreign Direct Investment," NBER Chapters, in: The Effects of US Trade Protection and Promotion Policies, pages 55-80, National Bureau of Economic Research, Inc.
    3. Blomstrom, Magnus & Kokko, Ari, 1997. "Regional integration and foreign direct investment : a conceptual framework and three cases," Policy Research Working Paper Series 1750, The World Bank.
    4. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2021. "Export-Platform Foreign Direct Investment," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 6, pages 111-130, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Nguyen-Huu, Thanh Tam & Nguyen-Khac, Minh, 2017. "Impacts of Export-platform FDI on the production of upstream industries - do third country size, trade agreements and local content requirement matter? Evidence from the Vietnamese supporting industries," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 11, pages 1-33.
    2. Scoppola, Margherita, 2006. "Regional integration and production location: what theories (do not) tell us," Working Papers 18862, TRADEAG - Agricultural Trade Agreements.
    3. Hiroshi Mukunoki, 2017. "The welfare effect of a free trade agreement in the presence of foreign direct investment and rules of origin," Review of International Economics, Wiley Blackwell, vol. 25(4), pages 733-759, September.
    4. Shawn ARITA & Kiyoyasu TANAKA, 2013. "Regional Investment Liberalization and FDI," Discussion papers 13088, Research Institute of Economy, Trade and Industry (RIETI).
    5. Jean-Francois HOARAU, 2009. "INVESTISSEMENTS DIRECTS eTRANGERS ET INTeGRATION ReGIONALE : UN eTAT DES LIEUX POUR LE MARCHe COMMUN D’AFRIQUE DE L’EST ET DU SUD," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 29, pages 69-103.
    6. Nguyen-Huu, Thanh Tam & Nguyen-Khac, Minh, 2017. "Impacts of export-platform FDI on backward linkages - Do third country size, trade agreements and heterogeneity of firms matter? Evidence from the Vietnamese supporting industries," Economics Discussion Papers 2017-21, Kiel Institute for the World Economy.
    7. Antonios Georgopoulos & Felicitas Nowak-Lehmann D. & Vasilios Sogiakas, 2013. "Survival Characteristics and Adjustment of MNE Affiliates in the European Integrated Market," Ibero America Institute for Econ. Research (IAI) Discussion Papers 225, Ibero-America Institute for Economic Research.
    8. Huu Thanh Tam Nguyen & Nguyen Khac, 2013. "Demand creation and competition effect of Export-platform FDI on backward linkages - Evidence from panel data analysis of Vietnamese supporting industries," Documents de recherche 13-02, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    9. Tanaka, Kiyoyasu & Arita, Shawn, 2016. "The impact of regional investment liberalization on foreign direct investment: A firm-level simulation assessment," Japan and the World Economy, Elsevier, vol. 37, pages 17-26.

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