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Equilibrium coalition structures in the presence of foreign direct investment

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  • Hyejoon Im

Abstract

This paper incorporates foreign direct investment (FDI) into the examination of trading bloc formation with endogenously determined coalition structures. In so doing, we build a three-country model, in which firms serve foreign markets either by exporting or undertaking FDI, and consider a coalition formation game with the Coalition Proof Nash Equilibrium as an equilibrium concept. We find that the equilibrium coalition structure varies upon firms characterization before and after the formation of a trading bloc. As in the literature, when all firms are exporters in the pre- and post-formation, bilateralism can be an equilibrium outcome. However, when trade barriers are not so high as to be trade-prohibitive and the environment is favorable to multinational activities in the pre- or post-formation, only global free trade will prevail as an equilibrium coalition structure.

Suggested Citation

  • Hyejoon Im, 2009. "Equilibrium coalition structures in the presence of foreign direct investment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 139-167.
  • Handle: RePEc:taf:jitecd:v:18:y:2009:i:1:p:139-167
    DOI: 10.1080/09638190902757475
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    Cited by:

    1. Muhammad Shahbaz & Mohammad Mafizur Rahman, 2012. "The Dynamic of Financial Development, Imports, Foreign Direct Investment and Economic Growth: Cointegration and Causality Analysis in Pakistan," Global Business Review, International Management Institute, vol. 13(2), pages 201-219, June.

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