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Endogenous market structures and the gains from foreign direct investment

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  • De Santis, Roberto A.
  • Stahler, Frank

Abstract

This paper discusses the gains from foreign direct investment (FDI) in a two country setting with endogenous markets structures under two alternative locations for the oligopolistic industry. If the oligopolistic industry is located in the domestic country only, we show that market concentration occurs if national and multinational firms coexist. In this case, FDI is welfare improving for the foreign country, but welfare declining for the domestic country. If only multinational firms are competitive, the impact on market structure and the welfare of the domestic country is indeterminate, whereas the welfare of the foreign country improves. By contrast, if the oligopolistic industry is located in both countries, then FDI compared to intraindustry trade leads to mutual welfare gains.
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Suggested Citation

  • De Santis, Roberto A. & Stahler, Frank, 2004. "Endogenous market structures and the gains from foreign direct investment," Journal of International Economics, Elsevier, vol. 64(2), pages 545-565, December.
  • Handle: RePEc:eee:inecon:v:64:y:2004:i:2:p:545-565
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    Citations

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    Cited by:

    1. Federico Etro, 2014. "The Theory Of Endogenous Market Structures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 804-830, December.
    2. repec:got:cegedp:22 is not listed on IDEAS
    3. Mugele, Christian & Schnitzer, Monika, 2008. "Organization of multinational activities and ownership structure," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1274-1289, November.
    4. De Santis, Roberto A. & Ehling, Paul, 2007. "Do international portfolio investors follow firms' foreign investment decisions?," Working Paper Series 815, European Central Bank.
    5. Onur A. Koska & Ngo Van Long & Frank Stähler, 2018. "Foreign direct investment as a signal," Review of International Economics, Wiley Blackwell, vol. 26(1), pages 60-83, February.
    6. Anderton, Robert & Hijzen, Alexander & De Santis, Roberto A., 2004. "On the determinants of euro area FDI to the United States: the knowledge- capital-Tobin's Q framework," Working Paper Series 329, European Central Bank.
    7. Stahler, Frank, 2006. "Market entry and foreign direct investment," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 335-347, March.
    8. Roberto A. De Santis & Frank Stähler, 2009. "Foreign Direct Investment and Environmental Taxes," German Economic Review, Verein für Socialpolitik, vol. 10, pages 115-135, February.
    9. 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.
    10. Federico Etro, 2012. "Endogenous Market Structures and International Trade. II: Optimal Trade Policy," Working Papers 2012:32, Department of Economics, University of Venice "Ca' Foscari".
    11. Jacques, Armel, 2006. "Des firmes multinationales : un survol de la littérature microéconomique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 82(4), pages 643-691, décembre.
    12. Nishiyama, Hiroyuki & Yamaguchi, Masao, 2010. "Foreign direct investment, international trade, and firm heterogeneity," Economic Modelling, Elsevier, vol. 27(1), pages 184-195, January.
    13. Animashaun, Jubril Olayinka & Ojehomon, Vivian EbihomonTitilayo & Muhammad-Lawal, Abdulazeez & Amolegbe, Khadijah Busola, 0. "Between Foreign Direct Investment (Fdi) And Outsourcing: Which Policy Strategy Will Enhance The Competitiveness Of The Nigerian Rice Sector?," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 3.

    More about this item

    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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