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Market Entry and Foreign Direct Investment

Author

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  • Stahler, Frank

    (University of Kiel)

Abstract

This paper discusses the impact of foreign direct investment (FDI) on market entry and welfare. It assumes that firms may enter markets in the first period as national firms only. In the second period, however, FDI is possible. The paper demonstrates that FDI reduces market entry because equilibrium profits in the second period decline with a decrease in the fixed cost of FDI. Therefore, compared to a trade regime without any FDI, prices rise in the first period but decline in the second period. The paper shows, however, that FDI will unambiguously improve the discounted sum of consumer surplus.

Suggested Citation

  • Stahler, Frank, 2003. "Market Entry and Foreign Direct Investment," Royal Economic Society Annual Conference 2003 191, Royal Economic Society.
    • Handle: RePEc:ecj:ac2003:191
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    Cited by:

    1. is not listed on IDEAS
    2. Goerke, Laszlo, 2020. "A political economy perspective on horizontal FDI in a dynamic Cournot-oligopoly with endogenous entry," European Journal of Political Economy, Elsevier, vol. 63(C).
    3. Hikaru Ogawa & Wenming Wang, 2025. "Global emissions, regulatory competition and excess entry," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 58(2), pages 771-802, May.
    4. Nishiyama, Hiroyuki & Yamaguchi, Masao, 2010. "Foreign direct investment, international trade, and firm heterogeneity," Economic Modelling, Elsevier, vol. 27(1), pages 184-195, January.

    More about this item

    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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