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Foreign Market Entry under Incomplete Contracts

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  • Tobias Seidel

Abstract

I show in this paper that incomplete contracts affect a firm’s decision about serving foreign customers through exports or local sales from an affiliated plant. When contracts between two agents within a firm are too costly to write, the share of multinational firms may be higher or lower compared to a world without contractual frictions. Incomplete contracts also provide a novel explanation for why horizontal multinational activity may increase when trade costs fall - a result that is at odds with the proximity-concentration trade-off.

Suggested Citation

  • Tobias Seidel, 2010. "Foreign Market Entry under Incomplete Contracts," CESifo Working Paper Series 3248, CESifo.
    • Handle: RePEc:ces:ceswps:_3248
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3248.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    multinational firms; exports; incomplete contracts;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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