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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. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
    2. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    3. 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.
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    5. Fabrice Defever & Farid Toubal, 2007. "Productivity and the Sourcing Modes of Multinational Firms: Evidence from French Firm-Level Data," CEP Discussion Papers dp0842, Centre for Economic Performance, LSE.
    6. Kjell Erik Lommerud & Frode Meland & Lars Sørgard, 2002. "Unionized Oligopoly, Trade Liberalization and Location Choice," CESifo Working Paper Series 777, CESifo Group Munich.
    7. Eckel, Carsten & Egger, Hartmut, 2009. "Wage bargaining and multinational firms," Munich Reprints in Economics 20528, University of Munich, Department of Economics.
    8. 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.
    9. Bernard, Andrew B. & Jensen, J Bradford & Redding, Stephen J. & Schott, Peter K., 2010. "Intra-firm Trade and Product Contractibility," CEPR Discussion Papers 7927, C.E.P.R. Discussion Papers.
    10. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
    11. Carluccio, Juan & Fally, Thibault, 2010. "Global Sourcing under Imperfect Capital Markets," CEPR Discussion Papers 7868, C.E.P.R. Discussion Papers.
    12. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
    13. repec:hrv:faseco:4784029 is not listed on IDEAS
    14. Antras, Pol, 2003. "Firms, Contracts, and Trade Structure," Scholarly Articles 3196328, Harvard University Department of Economics.
    15. Corcos, Gregory & Irac, Delphine & Mion, Giordano & Verdier, Thierry, 2009. "The Determinants of Intra-Firm Trade," CEPR Discussion Papers 7530, C.E.P.R. Discussion Papers.
    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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