Strategic Investment, Multinational Corporations and Trade Policy

Alasdair Smith

No 137, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper presents a model of the multinational corporation focusing on a foreign firm which wishes to operate in a particular country. The firm must choose between direct investment and production in the country and production of the product elsewhere, followed by its export into the country concerned. The paper considers how government policy may influence this choice. Foreign direct investment may serve as a deterrent to entry, in the style of Dixit (1980). The effects of trade policy on foreign direct investment are very different in this oligopolistic model than in a competitive model. Depending on the nature of the oligopolistic equilibrium, tariffs may or may not induce foreign direct investment, they may or may not change the market structure, and they may have pro- or anti-competitive effects. In particular, it is possible for a tariff to deter foreign direct investment, contrary to the conventional wisdom.

Keywords: Entry Deterrence; Foreign Direct Investment; Multinational Corporations; Strategic Investment; Tariffs; Trade Policy (search for similar items in EconPapers)
Date: 1986-11
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=137 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
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:cpr:ceprdp:137

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... pers/dp.php?dpno=137

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().