Incentives for foreign direct investment under imitation
Document Type
Journal article
Source Publication
Canadian Journal of Economics
Publication Date
1-1-1999
Volume
32
Issue
5
First Page
1275
Last Page
1298
Abstract
We study the symmetric mixed strategy equilibrium of a dynamic model where at each instant two exporting firms choose their probability of foreign direct investment (FDI). The first firm's FDI generates cost-lowering spillovers for the second and leads to local imitation, thereby intensifying competition. While an increase in imitation risk usually makes FDI less likely, there exist parameter values for which the converse holds. The key point is that by delaying the second firm's switch to FDI, an increase in imitation risk can increase the value of being first to invest, thereby increasing the equilibrium probability of FDI.
DOI
10.2307/136482
Print ISSN
00084085
E-ISSN
15405982
Publisher Statement
Copyright © 1999 Canadian Economics Association
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Lin, P., & Sggi K. (1999). Incentives for foreign direct investment under imitation. Canadian Journal of Economics, 32(5), 1275-1298. doi: 10.2307/136482