GEP Research Paper 03/39
Foreign direct investment and export under imperfectly competitive host-country input market
Arijit Mukherjee
Abstract
In this paper we examine entry decision of a foreign firm when the input market in the host-country is imperfect competitive and production requires non-tradable inputs. We show that the foreign firm's strategic choice about FDI and export may affect the price of input in the host-country significantly and provides a rationale for doing both FDI and export at the same time. So, unlike the previous works focusing on the exogenous factors to explain that FDI and exports may be 'complement', we show that it may happen when the strategic actions of the foreign firms affect an endogenous variable in its favor. We show that this result is robust even if there is competition in the host-country market or the input market in the home country is imperfectly competitive.
Issued in November 2003.
This paper is available in PDF format.