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Welfare, home market effects, and horizontal foreign direct investment


  • BEHRENS, Kristian
  • PICARD, Pierre M.


We investigate the spatial distribution and organization of an imperfectly competitive industry when firms may choose to operate more than a single production unit. Focusing on a short-run setting with a fixed mass of firms, we fully characterize the spatial equilibria analytically. Comparing the equilibrium and the first-best, we show that both organizational and spatial inefficiencies may arise. In particular, when fixed costs are low enough the market outcome may well lead to overinvestment and, therefore, to too many multinationals operating from a social point of view. Furthermore, once multinationals are taken into account, the market outcome may well lead too little agglomeration.

Suggested Citation

  • BEHRENS, Kristian & PICARD, Pierre M., 2005. "Welfare, home market effects, and horizontal foreign direct investment," CORE Discussion Papers 2005065, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2005065

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    Cited by:

    1. Hayato Kato, 2017. "Lobbying and Tax Competition in an Oligopolistic Industry: A Reverse Home Market Effect," Keio-IES Discussion Paper Series 2017-028, Institute for Economics Studies, Keio University.
    2. Kenmei Tsubota, "undated". "Location and organization choice of firms," KIER Working Papers 679, Kyoto University, Institute of Economic Research.
    3. Hisamitsu Saito, 2015. "Firm Heterogeneity, Multiplant Choice, And Agglomeration," Journal of Regional Science, Wiley Blackwell, vol. 55(4), pages 540-559, September.

    More about this item


    international trade; imperfect competition; horizontal foreign direct investment; economic geography;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)


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