Market entry and foreign direct investment

Frank Stähler

No 22, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: This paper discusses the impact of foreign direct investment (FDI) on market entry and welfare in a model of two countries and two periods. In the first period, firms enter the market as national firms, in the second period, FDI is possible. The paper demonstrates that FDI reduces market entry because equilibrium profits in the second period decline with a decrease in the fixed cost of FDI. Therefore, compared to a trade regime without any FDI, prices rise in the first period but decline in the second period. The paper shows, however, that FDI will unambiguously improve the sum of discounted consumer surplus.

Keywords: Foreign direct investment; multinational enterprises; imperfect competition; free entry (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2004
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Related works:
Journal Article: Market entry and foreign direct investment (2006)
Working Paper: Market Entry and Foreign Direct Investment (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:22

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