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Market Structure and Foreign Direct Investment

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  • Campa, Jose
  • Donnenfeld, Shabtai
  • Weber, Shlomo

Abstract

During the last decade the extent of inward foreign direct investment (FDI) in the United States has increased dramatically. An important aspect of industries where most FDI takes place is their high level of concentration. This paper investigates how strategic interactions among domestic and foreign producers influence the structure of the industry. Especially, it focuses on the foreign firms' choice between exporting versus servicing these markets by investing in a plant located in the host country when facing competition from a domestic oligopoly. The empirical investigation reveals that the relationship between FDI and tariffs is not as simple as previously thought. In highly concentrated industries, where strategic behavior may play an important role, high tariffs rather than low tariffs may lead to less FDI and more imports. Copyright 1998 by Blackwell Publishing Ltd.

Suggested Citation

  • Campa, Jose & Donnenfeld, Shabtai & Weber, Shlomo, 1998. "Market Structure and Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 361-380, August.
  • Handle: RePEc:bla:reviec:v:6:y:1998:i:3:p:361-80
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    Cited by:

    1. Duarte Brito & Daniel Magueta, 2014. "Horizontal Mergers, Entry and International Trade," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 923-943, November.
    2. Aray, Henry & Gardeazabal, Javier, 2010. "Going multinational under exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1171-1191, October.
    3. Katja Zajc Kejžar, 2011. "Does Foreign Direct Investment Induce Domestic Mergers?," Open Economies Review, Springer, vol. 22(2), pages 271-291, April.
    4. Joseph Francois & Henrik Horn, 2006. "Antitrust in Open Economies," Tinbergen Institute Discussion Papers 06-006/2, Tinbergen Institute.
    5. Pehr-Johan Norbäck & Lars Persson, 2008. "Cross-Border Mergers & Acquisitions Policy in Service Markets," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 269-293, December.
    6. Belderbos,Ren� & Sleuwaegen,Leo, 2000. "Foreign Investment and International Plant Configuration: Whither the Product Cycle?," Research Memorandum 003, Maastricht University, Netherlands Institute of Business Organization and Strategy Research (NIBOR).
    7. Belderbos, R. & Vandenbussche, H. & Veugelers, R., 2004. "Antidumping duties, undertakings, and foreign direct investment in the EU," European Economic Review, Elsevier, vol. 48(2), pages 429-453, April.
    8. Stephen Davies & Laura Rondi & Alessandro Sembenelli, 1998. "98 S.E.M. and the changing structure of eu manufacturing, 1987-1993," CERIS Working Paper 199805, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    9. Belderbos, Rene & Vandenbussche, Hylke & Veugelers, Reinhilde, 1999. "Undertakings and Antidumping Jumping FDI in Europe," CEPR Discussion Papers 2320, C.E.P.R. Discussion Papers.

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