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FDI in Post-Production Services and Product Market Competition

  • Jota Ishikawa
  • Hodaka Morita
  • Hiroshi Mukunoki

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. We explore an international duopoly model in which a foreign firm has the option of outsourcing post-production services to its domestic rival or providing those services by establishing its own facilities through FDI. We demonstrate that trade liberalization in goods may hurt domestic consumers and lower world welfare, and that the negative welfare impacts are turned into positive ones if service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is still limited.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-136.pdf
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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-136.

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Date of creation: Apr 2010
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Handle: RePEc:hst:ghsdps:gd10-136
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  1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
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