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Location for Foreign Direct Investment in Vertically Related Markets
Author(s) -
Milliou Chrysovalantou
Publication year - 2014
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.12106
Subject(s) - foreign direct investment , multinational corporation , competition (biology) , upstream (networking) , transfer pricing , economics , industrial organization , international economics , investment (military) , horizontal and vertical , international trade , business , market economy , macroeconomics , politics , computer science , finance , ecology , computer network , geodesy , political science , law , biology , geography
This paper studies a multinational enterprise's ( MNE 's) location decision in a vertically related market with endogenous vertical technology transfer ( VTT ). We show that, even though VTT is more costly in a less developed country, an MNE can transfer more technology there than in a developed country ( DC ). When the opposite occurs, the MNE sometimes locates in a DC where, although it faces stronger competition, it obtains the input at better terms. Therefore, by arguing that the MNE 's decision can be crucially affected by the upstream market's outcomes, an alternative explanation is provided for the commonly observed foreign direct investment ( FDI ) in DC s.