Trade Cost Reduction and Foreign Direct Investment in a Vertical Structure

21 Pages Posted: 17 Nov 2017

See all articles by M. Emranul Haque

M. Emranul Haque

University of Manchester - School of Social Sciences

Arijit Mukherjee

University of Nottingham - School of Economics

Burcu Senalp

Kırklareli University

Date Written: October 18, 2017

Abstract

Although empirical evidence shows that a lower trade cost and higher FDI may go hand in hand, the well-known “proximity-concentration” hypothesis does not support this view. We provide a simple explanation for this phenomenon. We show that a lower trade cost on the intermediate goods (with or without a trade cost reduction on the final goods) increases the incentive for FDI in the final goods market. In this respect, we show the roles played by the production technologies of the firms.

Suggested Citation

Haque, M. Emranul and Mukherjee, Arijit and Senalp, Burcu, Trade Cost Reduction and Foreign Direct Investment in a Vertical Structure (October 18, 2017). CESifo Working Paper Series No. 6689, Available at SSRN: https://ssrn.com/abstract=3072171

M. Emranul Haque

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+0161 275 4829 (Phone)

HOME PAGE: http://www.socialsciences.manchester.ac.uk/disciplines/economics/about/staff/

Arijit Mukherjee (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 9514733 (Phone)
+44 115 9514159 (Fax)

Burcu Senalp

Kırklareli University ( email )

Lüleburgaz MYO
Kepirtepe L
Turkey

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