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Vertical Foreign Direct Investment: Make, Sell and (Not) Buy

Author

Listed:
  • Chrysovalantou Milliou

    (Department of International and European Economic Studies)

  • Joel Sandonís Díez

    (Universidad de Alicante)

Abstract

According to conventional wisdom, multinational firms undertake vertical FDI in order to take advantage of cross-border factor cost differences and source the inputs from abroad at better terms. Recent empirical findings though document that this is not always the case. We provide theoretical support to the latter by demonstrating that when there is transfer of intangible assets between a multinational’s vertically related production plants, its parent firm can engage in vertical FDI in order to improve its cross-threat and its input sourcing terms domestically and not abroad as well as in order to exploit its intangible assets in another country. We also investigate the effects of trade liberalization and the welfare consequences of vertical FDI.

Suggested Citation

  • Chrysovalantou Milliou & Joel Sandonís Díez, 2017. "Vertical Foreign Direct Investment: Make, Sell and (Not) Buy," Working Papers. Serie AD 2017-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2017-02
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    References listed on IDEAS

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    More about this item

    Keywords

    international trade; vertical FDI; inputs; trade liberalization; intangible assets; two-part tariffs;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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