Market Structure and Foreign Direct Investment

Jose Campa, Shabtai Donnenfeld and Shlomo Weber ()

Review of International Economics, 1998, vol. 6, issue 3, 361-80

Abstract: During the last decade the extent of inward foreign direct investment (FDI) in the United States has increased dramatically. An important aspect of industries where most FDI takes place is their high level of concentration. This paper investigates how strategic interactions among domestic and foreign producers influence the structure of the industry. Especially, it focuses on the foreign firms' choice between exporting versus servicing these markets by investing in a plant located in the host country when facing competition from a domestic oligopoly. The empirical investigation reveals that the relationship between FDI and tariffs is not as simple as previously thought. In highly concentrated industries, where strategic behavior may play an important role, high tariffs rather than low tariffs may lead to less FDI and more imports. Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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