Abstract

http://ssrn.com/abstract=894762
 
 

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Welfare, Home Market Effects, and Horizontal Foreign Direct Investment


Kristian Behrens


Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Université de Bourgogne - LATEC

Pierre M. Picard


Centre 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

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Date posted: June 30, 2006  

Suggested Citation

Behrens, Kristian and Picard, Pierre M., Welfare, Home Market Effects, and Horizontal Foreign Direct Investment (October 2005). Available at SSRN: http://ssrn.com/abstract=894762 or http://dx.doi.org/10.2139/ssrn.894762

Contact Information

Kristian Behrens (Contact Author)
Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
HOME PAGE: http://www.core.ucl.ac.be:16080/~behrens/
Université de Bourgogne - LATEC
Pôle d'Economie et de Gestion
21066 Dijon Cedex
France
Pierre M. Picard
Centre de Recherche en Économie Appliquée (CREA) ( email )
Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg
Universite du Luxembourg
L-1511 Luxembourg
Luxembourg
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