Distance and Foreign Direct Investment when Contracts are Incomplete
We introduce incomplete contracts in a model where multinational firms from a certain country ("North") can decide to serve a foreign market ("South") through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs that could be supplied either by northern suppliers or by suppliers located in South. Intermediate sourcing contracts are complete in North but not in South. Were southern contracts also complete, FDI would arise only when trade barriers are high enough. Incomplete contracts in South generate, instead, a non-linear relation between trade barriers and FDI as foreign investment emerges also when trade barriers are low enough. The reason is the positive effect that low trade barriers have on the bargaining power of final producers with respect to their southern suppliers. (JEL: F23, F12) (c) 2007 by the European Economic Association.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 5 (2007)
Issue (Month): 4 (06)
|Contact details of provider:|| Web page: http://www.mitpressjournals.org/jeea|
|Order Information:||Web: http://www.mitpressjournals.org/jeea|
When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:5:y:2007:i:4:p:796-822. 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: (Kristin Waites)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.