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Market Size, Local Sourcing and Policy Competition for Foreign Direct Investment
Author(s) -
Ma Jie
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12084
Subject(s) - foreign direct investment , economics , competition (biology) , market size , international economics , intermediate good , production (economics) , welfare , investment (military) , international trade , market economy , microeconomics , macroeconomics , ecology , politics , political science , law , biology
This paper analyzes policy competition for a foreign‐owned monopolist firm between two asymmetric countries. In particular, one country has a larger economy than the other country. At the same time, the small country produces an intermediate good for the final good production, while the large country does not. We show that whether a country will win foreign direct investment ( FDI ) competition is determined by the interaction between relative transport costs of intermediate and final goods and the market size of the large country relative to that of the small country; and policy competition for FDI may Pareto weakly improve national welfare of the competing countries.