Strategic Foreign Direct Investment in Vertically Related Markets

Jota Ishikawa and Eiji Horiuchi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: By using a simple North-South trade model with vertically related markets, this paper draws our attention to previously unidentified effects of foreign direct investment (FDI), namely that a North downstream firm affects the pricing behavior of an input supplier through technology spillovers and market integration led by FDI. Whether the North firm strategically undertakes FDI in the presence of technology spillovers depends on the South firm's capacity to absorb the North's technology. When capacity is not very high, the North firm could actually gain from technology spillovers to the South firm. FDI may benefit all producers and consumers. We also explore the South's policy measures to attract FDI. Our analysis suggests that the South's very tight intellectual property rights (IPR) protection may benefit neither side.

Pages: 28 pages
Date: 2012-03
New Economics Papers: this item is included in nep-int, nep-ipr and nep-pr~
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Citations: View citations in EconPapers (8)

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Journal Article: Strategic Foreign Direct Investment in Vertically Related Markets (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:12014

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