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Foreign Market Entry under Incomplete Contracts

  • Tobias Seidel
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    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.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-11/cesifo1_wp3248.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3248.

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    Date of creation: 2010
    Handle: RePEc:ces:ceswps:_3248
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