Potential FDI causing large distortions in domestic production
When a foreign firm enters a domestic market, either via exports or through foreign direct investment (FDI), one factor determining the most favourable entrance mode is the profitability of the market, which may not be directly observed by the foreign firm. If the domestic trade protection policy is within a certain range that causes the foreign entrant's decision to swing between the two entry modes, the final choice will depend on the foreign firm's belief about the profitability. In such a situation, a domestic incumbent firm wishing to prevent FDI will heavily distort its production downward to convince the foreign competitor that the market is not profitable. When making trade policy, such strategic behaviour on the part of the domestic firm should be taken into account.
Volume (Year): 17 (2008)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RJTE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RJTE20|
When requesting a correction, please mention this item's handle: RePEc:taf:jitecd:v:17:y:2008:i:4:p:485-500. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.