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Endogenous market structures and the gains from foreign direct investment

  • De Santis, Roberto A.
  • Stahler, Frank

This paper discusses the gains from liberalizing foreign direct investment (FDI) in a two country setting with endogenous market structures. Two different scenarios are investigated. In the first scenario, headquarters are run in the domestic country only and the FDI regime is compared to the intersectoral trade case. If multinational and national firms coexist, market concentration occurs and FDI is welfare improving for the foreign country, but welfare declining for the domestic country. In the second scenario, headquarters are run in both countries and the FDI regime is compared to the intraindustry trade case. This regime switch leads to mutual welfare gains, irrespective of market structure effects.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 64 (2004)
Issue (Month): 2 (December)
Pages: 545-565

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Handle: RePEc:eee:inecon:v:64:y:2004:i:2:p:545-565
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. James R. Markusen & Keith E. Maskus, 1999. "Discriminating Among Alternative Theories of the Multinational Enterprise," NBER Working Papers 7164, National Bureau of Economic Research, Inc.
  2. Bruce A. Blonigen, 1999. "In Search of Substitution Between Foreign Production and Exports," NBER Working Papers 7154, National Bureau of Economic Research, Inc.
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  4. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
  5. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  6. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  7. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
  8. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  9. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
  10. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  11. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
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