IDEAS home Printed from https://ideas.repec.org/p/ucn/wpaper/200823.html
   My bibliography  Save this paper

Business Networks and Inward FDI Policy

Author

Listed:
  • Fergal McCann

Abstract

I outline the effect of business networks on trade, FDI and welfare in a two-country, two-firm duopoly. The network effect, following Greaney (2002), is modelled as a marginal cost disadvantage facing arm from Foreign in selling to Home. Unlike traditional trade costs, this cost cannot be avoided by investing in Home. My main addition is a Nash game between governments in which they subsidise the fixed costs of inward FDI. While the network effect is shown to lead to favourable outcomes for the Home firm, I show that once government subsidies to the fixed costs of FDI are included and welfare functions analysed, the network effect leads to asymmetric outcomes unfavourable to Home. This result can help inform the debate on countries' (in particular Japan's) international trade and investment relations.

Suggested Citation

  • Fergal McCann, 2008. "Business Networks and Inward FDI Policy," Working Papers 200823, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:200823
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10197/6370
    File Function: First version, 2008
    Download Restriction: no

    More about this item

    Keywords

    Foreign direct investment; Government subsidies; Network effects;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucn:wpaper:200823. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicolas Clifton). General contact details of provider: http://edirc.repec.org/data/educdie.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.