Foreign Direct Investment and the Single Market

36 Pages Posted: 6 Aug 2002

See all articles by J. Peter Neary

J. Peter Neary

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: June 2002

Abstract

This Paper extends the theory of multinational corporations, identifying three distinct influences of internal trade liberalization by a group of countries on the level and pattern of inward foreign direct investment (FDI). First, the tariff-jumping motive encourages plant consolidation. Second, the export platform motive favours FDI with only a single union plant relative to exporting, and may induce a firm that has never exported to invest. Finally, reduced internal tariffs increase competition from domestic firms, which dilutes the other motives and may induce a "Fortress Europe" outcome of multinationals leaving union markets even though external tariffs are unchanged.

Keywords: Foreign direct investment, market integration, multinational corporations, single market

JEL Classification: F12, F15, F23

Suggested Citation

Neary, J. Peter, Foreign Direct Investment and the Single Market (June 2002). Available at SSRN: https://ssrn.com/abstract=321088

J. Peter Neary (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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