Vertical Foreign Direct Investment: Make, Sell and (Not) Buy

Chrysovalantou Milliou and Joel Sandonis

No 6190, CESifo Working Paper Series from CESifo

Abstract: According to conventional wisdom, multinational firms undertake vertical FDI in order to take advantage of cross-border factor cost differences and source the inputs from abroad at better terms. Recent empirical findings though document that this is not always the case. We provide theoretical support to the latter by demonstrating that when there is transfer of intangible assets between a multinational’s vertically related production plants, its parent firm can engage in vertical FDI in order to improve its cross-threat and its input sourcing terms domestically and not abroad as well as in order to exploit its intangible assets in another country. We also investigate the effects of trade liberalization and the welfare consequences of vertical FDI.

Keywords: international trade; vertical FDI; inputs; trade liberalization; intangible assets; two-part tariffs (search for similar items in EconPapers)
JEL-codes: F12 F23 L13 L22 L23 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Vertical Foreign Direct Investment: Make, Sell and (Not) Buy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6190

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