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Investment liberalisation and firm selection process: A welfare analysis from a host-country perspective


  • Katja Zajc Kejzar


This paper analyses the welfare and market structure effects of investment liberalisation allowing for intra-industry firm-heterogeneity to account explicitly for the firm selection process induced by foreign firm entry and its interactions with productivity spillovers. Using a two-stage oligopolistic model in which a foreign firm decides whether and how to enter the host-country market (export versus foreign direct investment) while two asymmetrical local firms decide on their exit/stay strategy, it is shown that even where productivity spillover effects are absent and the entry of the multinational firm leads to the crowding-out of local firms, foreign direct investment can still improve host-country welfare.

Suggested Citation

  • Katja Zajc Kejzar, 2011. "Investment liberalisation and firm selection process: A welfare analysis from a host-country perspective," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(3), pages 357-377.
  • Handle: RePEc:taf:jitecd:v:20:y:2011:i:3:p:357-377 DOI: 10.1080/09638199.2011.538975

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    References listed on IDEAS

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    Cited by:

    1. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.


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