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Vertical Foreign Direct Investment, Welfare, and Employment

Author

Listed:
  • Elberfeld Walter

    (Universität zu Köln, elberfeld@wiso.uni-koeln.de)

  • Götz Georg

    (University of Vienna, georg.goetz@univie.ac.at)

  • Stähler Frank

    (University of Otago, frank.staehler@uni-wuerzburg.de)

Abstract

This paper shows that vertical foreign direct investment will reduce prices but the aggregate welfare effect is unambiguously positive only under free market entry. Using a standard model of imperfect competition, we develop this result by considering two different cases. In the first case, the total number of firms is fixed, and we show that national and multinational firms may coexist. In the second case, we allow for market entry, and we focus on situations in which either only national or only multinational firms are active. Furthermore, we discuss impact effects on labor demand. We show that a decline in foreign wages increases domestic employment.

Suggested Citation

  • Elberfeld Walter & Götz Georg & Stähler Frank, 2005. "Vertical Foreign Direct Investment, Welfare, and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, February.
    • Handle: RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:3
    DOI: 10.1515/1538-0653.1280
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    Citations

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    Cited by:

    1. Eric Toulemonde, 2008. "Multinationals: Too Many or Too Few?— The Proximity–concentration Trade-off," Open Economies Review, Springer, vol. 19(2), pages 203-219, April.
    2. repec:dau:papers:123456789/5841 is not listed on IDEAS
    3. Felipa de Mello‐Sampayo & Sofia de Sousa‐Vale & Francisco Camões & Orlando Gomes, 2012. "Protectionism under R&D policy: innovation rate and welfare," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(1), pages 106-124, January.
    4. Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camões, 2007. "Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits," Working Papers Series 1 ercwp0108, ISCTE-IUL, Business Research Unit (BRU-IUL).

    More about this item

    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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