Foreign entry and domestic welfare: lessons for developing countriesJournal of International Trade & Economic Development, 2002, vol. 11, issue 2, pages 143-162 Abstract: This paper examines the effects of foreign entry, in the form of either imports or direct foreign investment, into an oligopolistic market. Incorporating a possible divergence between private and social costs, it first derives simple conditions under which foreign entry reduces welfare relative to autarky. Then, in a multi-firm Cournot model with linear demand and international cost asymmetries, it shows that foreign entry reduces welfare unless it captures a very large share of the home market. However, it also shows that an optimal tariff can prevent this welfare decline. Some suggestive empirical evidence and extensions to differentiated products and to merger analysis are offered. The paper concludes with implications for trade and investment liberalization, as well as for domestic and international competition policy. Keywords: Direct Foreign Investment; Optimal Tariff; Oligopoly; Trade Liberalization; Strategic Trade Policy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:taf:jitecd:v:11:y:2002:i:2:p:143-162 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of International Trade & Economic Development is edited by Pasquale M. Sgro and Bharat R. Hazari More articles in Journal of International Trade & Economic Development from Taylor and Francis Journals |
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