Foreign Direct Investment For Sale

Onur Koska

No 910, Working Papers from University of Otago, Department of Economics

Abstract: This study examines the choice of a multinational firm between two alternative entry modes, a greenfield investment and a joint venture, under incomplete information. The joint venture partner is selected by an auction, which distinguishes this study from other studies in the literature. A private values auction allows a multinational firm to increase its share of the joint venture profit so that a joint venture is always preferable to greenfield investment. The model also examines the nationally optimal entry mode and finds that greenfield investment is likely to reduce welfare. The anticipated welfare implications of a joint venture crucially depend on the expectation of the marginal cost of the joint venture. Relative to a greenfield investment, a joint venture is welfare-improving if the negative impact of a joint venture on a local rival's profit is small.

Keywords: Foreign Direct Investment; Joint Venture; Incomplete Information; Auction with Externality (search for similar items in EconPapers)
JEL-codes: F23 L24 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-10, Revised 2009-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.otago.ac.nz/economics/research/otago077125.pdf First version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:otg:wpaper:0910

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