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Strategic Foreign Direct Investment in Vertically Related Markets

  • ISHIKAWA Jota
  • HORIUCHI Eiji

By using a simple North-South trade model with vertically related markets, this paper draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether the North firm strategically undertakes FDI in the presence of technology spillovers depends on the South firm's capacity to absorb the North's technology. When capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers. We also explore the South's policy measures to attract FDI. Our analysis suggests that the South's very tight intellectual property rights (IPR) protection may benefit neither side.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12014.

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Length: 28 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:eti:dpaper:12014
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  19. BARRIOS, Salvador & GOERG, Holger & STROBL, Eric, 2004. "Foreign direct investment, competition and industrial development in the host country," CORE Discussion Papers 2004011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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