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Foreign direct investment, international trade, and firm heterogeneity

  • Nishiyama, Hiroyuki
  • Yamaguchi, Masao

We present an asymmetric model with firm heterogeneity and foreign direct investment (FDI) from a developed country to a developing country. We found that the successful entry firms could be sorted from highest to lowest according to productivity as reimport firms, FDI firms, export firms, and domestic firms. We also found that FDI decreases (increases) the gross national income of the developed (developing) country, but it can either increase or decrease the world income according to the level of the relative propensity to spend. In addition, we demonstrated that FDI influences welfare through variations in average price, national income, and the number of types of goods.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 1 (January)
Pages: 184-195

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:184-195
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  1. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2005. "Products and Productivity," CEP Discussion Papers dp0699, Centre for Economic Performance, LSE.
  2. Volker Nocke & Stephen Yeaple, 2004. "An Assignment Theory of Foreign Direct Investment," NBER Working Papers 11003, National Bureau of Economic Research, Inc.
  3. Roberto A. De Santis & Frank Stähler, 1999. "Endogenous Market Structure and the Gains from Foreign Direct Inverstment," Kiel Working Papers 958, Kiel Institute for the World Economy.
  4. Stähler, Frank, 2004. "Market entry and foreign direct investment," Center for European, Governance and Economic Development Research Discussion Papers 22, University of Goettingen, Department of Economics.
  5. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 31-66.
  6. Baldwin, Richard & Forslid, Rikard, 2004. "Trade Liberalization with Heterogenous Firms," CEPR Discussion Papers 4635, C.E.P.R. Discussion Papers.
  7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  8. Krugman, Paul, 1995. "Increasing returns, imperfect competition and the positive theory of international trade," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 24, pages 1243-1277 Elsevier.
  9. Yuqing Xing & Laixun Zhao, 2003. "Reverse Imports, Foreign Direct Investment and Exchange Rates," Working Papers EMS_2003_03, Research Institute, International University of Japan.
  10. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier.
  11. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  12. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
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