Vertical Foreign Direct Investment, Welfare, and Employment

Walter Elberfeld, Georg Götz () and Frank Stähler
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Walter Elberfeld: Universität zu Köln
Frank Stähler: University of Otago

The B.E. Journal of Economic Analysis & Policy, 2005, vol. topics.5, issue 1

Abstract: This paper shows that vertical foreign direct investment will reduce prices but the aggregate welfare effect is unambiguously positive only under free market entry. Using a standard model of imperfect competition, we develop this result by considering two different cases. 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, we allow for market entry, and we focus on situations in which either only national or only multinational firms are active. Furthermore, we discuss impact effects on labor demand. We show that a decline in foreign wages increases domestic employment.

Keywords: Vertical foreign direct investment; multinational enterprises; imperfect competition; welfare; labor demand (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2005

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Working Paper: Vertical foreign direct investment, welfare, and employment (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:3

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