Vertical Foreign Direct Investment, Industry Structure and Welfare

23 Pages Posted: 16 Apr 2001

See all articles by Walter Elberfeld

Walter Elberfeld

University of Cologne

Georg Götz

University of Giessen - Department of Economics

Frank Stähler

University of Tuebingen - Department of Economics; University of Adelaide - School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 2001

Abstract

This paper analyzes the effects of vertical foreign direct investment on industry structure, prices and welfare in two different scenarios. In the first case, the total number of firms is fixed, and we show that national and multinational firms may coexist. In the second case, market entry is allowed, and we demonstrate that either only national or only multinational firms will be active. Furthermore, we show that vertical foreign direct investment will always reduce prices whereas the aggregate welfare effect is unambiguously positive only under free market entry. Finally, we discuss impact effects on labor demand.

Keywords: Vertical foreign direct investment, multinational enterprises, imperfect competition, welfare, labor demand

JEL Classification: f12, f15

Suggested Citation

Elberfeld, Walter and Götz, Georg and Stähler, Frank, Vertical Foreign Direct Investment, Industry Structure and Welfare (March 2001). Available at SSRN: https://ssrn.com/abstract=265217 or http://dx.doi.org/10.2139/ssrn.265217

Walter Elberfeld (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Staatswissenschaftliches Seminar
50931 Koeln
Germany
+49 221-470-4356 (Phone)
+49 221-470-5068 (Fax)

Georg Götz

University of Giessen - Department of Economics ( email )

Licher Str. 62
Giessen, Hessen D-35394
Germany
+49 641 99 22050 (Phone)
+49 641 99 19867 (Fax)

HOME PAGE: http://wiwi.uni-giessen.de/home/goetz/

Frank Stähler

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

HOME PAGE: http://www.frank-staehler.de

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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