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Foreign Direct Investment and the Single Market

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  • Neary, J Peter

Abstract

This Paper extends the theory of multinational corporations, identifying three distinct influences of internal trade liberalization by a group of countries on the level and pattern of inward foreign direct investment (FDI). First, the tariff-jumping motive encourages plant consolidation. Second, the export platform motive favours FDI with only a single union plant relative to exporting, and may induce a firm that has never exported to invest. Finally, reduced internal tariffs increase competition from domestic firms, which dilutes the other motives and may induce a ‘Fortress Europe’ outcome of multinationals leaving union markets even though external tariffs are unchanged.

Suggested Citation

  • Neary, J Peter, 2002. "Foreign Direct Investment and the Single Market," CEPR Discussion Papers 3419, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3419
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign direct investment; market integration; multinational corporations; single market;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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