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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
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    Handle: RePEc:ces:ceswps:_3248
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    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2013. "Intra-Firm Trade And Product Contractibility," Working Papers 13-12, Center for Economic Studies, U.S. Census Bureau.
    2. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2008. "The Determinants of Intra-Firm Trade," Development Working Papers 267, Centro Studi Luca d\'Agliano, University of Milano.
    3. Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
    4. Lommerud, Kjell Erik & Meland, Frode & Sørgard, Lars, 2001. "Unionized Oligopoly, Trade Liberalization and Location Choice," CEPR Discussion Papers 2990, C.E.P.R. Discussion Papers.
    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
    7. Pol Antràs & Elhanan Helpman, 2003. "Global Sourcing," NBER Working Papers 10082, National Bureau of Economic Research, Inc.
    8. Juan Carluccio & Thibault Fally, 2012. "Global Sourcing under Imperfect Capital Markets," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 740-763, August.
    9. Do, Quy-Toan & Levchenko, Andrei A., 2009. "Trade, inequality, and the political economy of institutions," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1489-1520, July.
    10. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
    11. Eckel, Carsten & Egger, Hartmut, 2009. "Wage bargaining and multinational firms," Journal of International Economics, Elsevier, vol. 77(2), pages 206-214, April.
    12. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November.
    13. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
    14. Fabrice Defever & Farid Toubal, 2007. "Productivity and the sourcing modes of multinational firms: evidence from French firm-level data," LSE Research Online Documents on Economics 19655, London School of Economics and Political Science, LSE Library.
    15. repec:hrv:faseco:4784029 is not listed on IDEAS
    16. Stephen Ross Yeaple, 2006. "Offshoring, Foreign Direct Investment, and the Structure of U.S. Trade," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 602-611, 04-05.
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