Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93423
Authors: 
Milliou, Chrysovalantou
Pavlou, Apostolis
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4623
Abstract: 
We study a multinational enterprise's (MNE) choice of foreign direct investment (FDI) mode in a vertically related market with local input sourcing. We show that the vertical structure of the market and its features play a crucial role for the MNE.s decision: backward linkages, enhanced upstream bargaining power, use of non-linear contracts, and interim unobservability of contract terms favor cross-border acquisition relative to greenfield investment. We also show that while a cross-border acquisition reduces welfare, greenfield investment can be welfare-improving. These results suggest that policy should distinguish among FDI modes as well as among markets with more or less dependence on backward linkages.
Subjects: 
foreign direct investment
greenfield investment
acquisition
vertical relations
two-part tariffs
JEL: 
L13
F12
F23
Document Type: 
Working Paper

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