Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31996
Authors: 
Stähler, Frank
Year of Publication: 
2004
Series/Report no.: 
CeGE Discussion Paper 22
Abstract: 
This paper discusses the impact of foreign direct investment (FDI) on market entry and welfare in a model of two countries and two periods. In the first period, firms enter the market as national firms, in the second period, FDI is possible. The paper demonstrates that FDI reduces market entry because equilibrium profits in the second period decline with a decrease in the fixed cost of FDI. Therefore, compared to a trade regime without any FDI, prices rise in the first period but decline in the second period. The paper shows, however, that FDI will unambiguously improve the sum of discounted consumer surplus.
Subjects: 
Foreign direct investment
multinational enterprises
imperfect competition
free entry
JEL: 
F12
F15
Document Type: 
Working Paper

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