IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Foreign Direct Investment Modes and Local Backward Linkages

  • Chrysovalantou Milliou
  • Apostolis Pavlou

We study a multinational enterprise’s (MNE) choice of foreign direct investment (FDI) mode in a vertically related market with local input sourcing. We show that the vertical structure of the market and its features play a crucial role for the MNE.s decision: backward linkages, enhanced upstream bargaining power, use of non-linear contracts, and interim unobservability of contract terms favor cross-border acquisition relative to greenfield investment. We also show that while a cross-border acquisition reduces welfare, greenfield investment can be welfare-improving. These results suggest that policy should distinguish among FDI modes as well as among markets with more or less dependence on backward linkages.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2014/wp-cesifo-2014-02/cesifo1_wp4623.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4623.

as
in new window

Length:
Date of creation: 2014
Date of revision:
Handle: RePEc:ces:ceswps:_4623
Contact details of provider: Postal:
Poschingerstrasse 5, 81679 Munich

Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
  2. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2007. "Upstream horizontal mergers, vertical contracts, and bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 963-987, October.
  3. J. Peter Neary, 2004. "Cross-border mergers as instruments of comparative advantage," Working Papers 200404, School of Economics, University College Dublin.
  4. Bonnet, Céline & Dubois, Pierre, 2008. "Inference on Vertical Contracts between Manufacturers and Retailers Allowing for Non Linear Pricing and Resale Price Maintenance," IDEI Working Papers 519, Institut d'Économie Industrielle (IDEI), Toulouse, revised Dec 2008.
  5. Chrysovalantou Milliou, 2014. "Location for Foreign Direct Investment in Vertically Related Markets," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 326-341, 05.
  6. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
  7. Ornella Tarola & Jean Gabszewicz & Didier Laussel, 2011. "To Acquire, or To Compete? An Entry Dilemma," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 369-383, December.
  8. Barrios Cobos, Salvador & Görg, Holger & Strobl, Eric, 2009. "Spillovers through backward linkages from multinationals: measurement matters!," Kiel Working Papers 1560, Kiel Institute for the World Economy (IfW).
  9. Thomas Müller, 2007. "Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 93-111, 02.
  10. Qiu, Larry D. & Tao, Zhigang, 2001. "Export, foreign direct investment, and local content requirement," Journal of Development Economics, Elsevier, vol. 66(1), pages 101-125, October.
  11. Eicher, Theo & Kang, Jong Woo, 2005. "Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals," Journal of Development Economics, Elsevier, vol. 77(1), pages 207-228, June.
  12. Villas-Boas, Sofia B., 2007. "Vertical relationships between manufacturers and retailers: inference with limited data," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6gz1t778, Department of Agricultural & Resource Economics, UC Berkeley.
  13. Howard Smith & John Thanassoulis, 2008. "Bargaining Between Retailers and their Suppliers," Economics Series Working Papers 388, University of Oxford, Department of Economics.
  14. Lin, Ping & Saggi, Kamal, 2007. "Multinational firms, exclusivity, and backward linkages," Journal of International Economics, Elsevier, vol. 71(1), pages 206-220, March.
  15. Anil Arya & Brian Mittendorf, 2011. "Disclosure standards for vertical contracts," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 595-617, 09.
  16. Carluccio, Juan & Fally, Thibault, 2010. "Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain," CEPR Discussion Papers 7866, C.E.P.R. Discussion Papers.
  17. Giroud, Axèle, 2007. "MNEs vertical linkages: The experience of Vietnam after Malaysia," International Business Review, Elsevier, vol. 16(2), pages 159-176, April.
  18. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
  19. Pack, Howard & Saggi, Kamal, 2001. "Vertical technology transfer via international outsourcing," Journal of Development Economics, Elsevier, vol. 65(2), pages 389-415, August.
  20. Salvatore Piccolo, 2009. "Colluding through Suppliers," CSEF Working Papers 224, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Apr 2010.
  21. Pehr-Johan Norbäck & Lars Persson, 2008. "Globalization and profitability of cross-border mergers and acquisitions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(2), pages 241-266, May.
  22. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  23. Jordaan, Jacob A., 2011. "FDI, Local Sourcing, and Supportive Linkages with Domestic Suppliers: The Case of Monterrey, Mexico," World Development, Elsevier, vol. 39(4), pages 620-632, April.
  24. Stéphane Caprice, 2006. "Multilateral Vertical Contracting with an Alternative Supply: The Welfare Effects of a Ban on Price Discrimination," Review of Industrial Organization, Springer, vol. 28(1), pages 63-80, 02.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4623. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.