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Strategic Foreign Direct Investment in Vertically Related Markets

In: Strategic Trade Policy

Author

Listed:
  • Jota Ishikawa
  • Eiji Horiuchi

Abstract

By using a simple North-South trade model with vertically related markets, this chapter draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether or not the North firm strategically undertakes FDI in the presence of technology spillovers depends on the South firm’s capacity to absorb North’s technology. When the capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers.

Suggested Citation

  • Jota Ishikawa & Eiji Horiuchi, 2026. "Strategic Foreign Direct Investment in Vertically Related Markets," World Scientific Book Chapters, in: Strategic Trade Policy, chapter 15, pages 377-406, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789819805921_0015
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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