Trade Costs, FDI incentives, and the Intensity of Price Competition

G. F. Gori, Luca Lambertini () and Alessandro Tampieri

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: Empirical evidence shows that an increase in trade liberalisation causes an increase in foreign direct investments (FDIs). Here we propose an explanation to this apparent puzzle by exploiting the intensity of competition in a Bertrand duopoly with convex costs where the two firms enter in a new market. We adopt Dastidar's (1995) approach, delivering a continuum of Bertrand-Nash equilibria ranging above marginal cost pricing, to show that softening competition may indeed more than offset the standard effect generated by trade costs, thereby leading to a positive relationship between trade liberalisation and FDIs.

JEL-codes: F12 F13 F23 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://amsacta.unibo.it/4208/1/WP810.pdf (application/pdf)

Related works:
Journal Article: Trade costs, FDI incentives, and the intensity of price competition (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp810

Access Statistics for this paper

More papers in Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna Contact information at EDIRC.
Bibliographic data for series maintained by Dipartimento Scienze Economiche, Universita' di Bologna ().