Distance and FDI When Contracts are Incomplete
Centro Studi Luca d'Agliano Development Studies Working Paper No. 165
26 Pages Posted: 14 Feb 2003
There are 2 versions of this paper
Distance and FDI When Contracts are Incomplete
Date Written: November 2002
Abstract
We introduce incomplete outsourcing contracts in an otherwise standard model of MNEs based on the trade-off between proximity and concentration. This has both positive and normative implications. As to the former, incomplete outsourcing contracts can account for the observed emergence of FDIs in large markets not only when trade costs are large but also when trade costs are small. As to the latter implications, contractual incompleteness alters someway dramatically the choice of supply mode made when contracts are complete.
Keywords: foreign direct investment, international trade costs, incomplete contracts
JEL Classification: F23
Suggested Citation: Suggested Citation
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