Foreign Direct Investment and the Single Market
J. Peter Neary
University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. 3419
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.
Number of Pages in PDF File: 36
Keywords: Foreign direct investment, market integration, multinational corporations, single market
JEL Classification: F12, F15, F23working papers series
Date posted: August 6, 2002
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