Kiel Working Papers, Kiel Institute for World Economics
No 958:
Endogenous Market Structure and the Gains from Foreign Direct Inverstment
Roberto A. De Santis and Frank Stähler
Abstract: This paper discusses the gains from foreign direct
investment (FDI) in a two country setting with endogenous markets
structures under two alternative locations for the oligopolistic industry.
If the oligopolistic industry is located in the domestic country only, we
show that market concentration occurs if national and multinational firms
coexist. In this case, FDI is welfare improving for the foreign country,
but welfare declining for the domestic country. If only multinational firms
are competitive, the impact on market structure and the welfare of the
domestic country is indeterminate, whereas the welfare of the foreign
country improves. By contrast, if the oligopolistic industry is located in
both countries' then FDI compared to intraindustry trade leads to mutual
welfare gains.
Keywords: Foreign direct investment, Multinational enterprises, Imperfect competition, Welfare.; (follow links to similar papers)
JEL-Codes: F12; F15; (follow links to similar papers)
22 pages, November 1999
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