Vertical Foreign Direct Investment, Welfare, and Employment

Elberfeld Walter, Georg Götz and Frank Stähler
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Elberfeld Walter: Universität zu Köln, elberfeld@wiso.uni-koeln.de

The B.E. Journal of Economic Analysis & Policy, 2005, vol. 5, issue 1, 30

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)
Date: 2005
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Citations: View citations in EconPapers (4)

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Working Paper: Vertical foreign direct investment, welfare, and employment (2002)
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DOI: 10.1515/1538-0653.1280

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