Premium
Foreign direct investment, input prices, and host country welfare
Author(s) -
Kao KuoFeng,
Chen ChinSheng
Publication year - 2019
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.12355
Subject(s) - economics , foreign direct investment , welfare , international economics , host (biology) , monetary economics , macroeconomics , market economy , biology , ecology
This paper analyzes a multinational firm’s foreign direct investment decision, through either greenfield investment or cross‐border merger and acquisition, into a host country with an input monopoly that adopts either uniform pricing or discriminatory pricing. The optimal foreign entry mode could differ under each pricing policy. Under Cournot competition, firms’ technological gap and the initial local market structure are critical to the choice of foreign entry mode, whereas product substitutability is important under Bertrand competition. In the presence of foreign entry, this paper also examines the welfare effects of input price discrimination for the host country.