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Welfare, Home Market Effects, and Horizontal Foreign Direct InvestmentKristian BehrensCatholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Université de Bourgogne - LATEC Pierre M. PicardCentre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg October 2005 CORE Discussion Paper No. 2005/65 Abstract: We investigate the spatial distribution and organization of an imperfectly competitive industry when firms may choose to operate more than a single production unit. Focusing on a short-run setting with a fixed mass of firms, we fully characterize the spatial equilibria analytically. Comparing the equilibrium and the first-best, we show that both organizational and spatial inefficiencies may arise. In particular, when fixed costs are low enough the market outcome may well lead to overinvestment and, therefore, to too many multinationals operating from a social point of view. Furthermore, once multinationals are taken into account, the market outcome may well lead too little agglomeration.
Number of Pages in PDF File: 34 Keywords: international trade, imperfect competition, horizontal foreign direct investment, economic geography JEL Classification: F12, F23, R12 working papers seriesDate posted: June 30, 2006Suggested CitationContact Information
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