Publication Status
E-pub ahead of print
Document Type
Journal article
Department / Unit
Department of Economics
Journal Title
International Economic Review
Publication Date
11-23-2011
Language
English
Volume
52
First Page
1271
Last Page
1290
Abstract
We study foreign direct investment (FDI) by two independent investors/entrants into a two-tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms.
DOI
10.1111/j.1468-2354.2011.00667.x
ISSN
0020-6598
Fulltext file version
Accepted author manuscript
Pure ID
10968307
Pure UUID
2810d037-2135-4049-b1e8-e63b542bfaaf