Distance and foreign direct investment when contracts are incomplete

• 成果类型: Article
• 署名作者: Ottaviano, Gianmarco I. P.; Turrini, Alessandro
• 署名单位: University of Bologna; European Commission Joint Research Centre
• 刊物名称: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
• ISSN/ISSBN: 1542-4766
• DOI: 10.1162/JEEA.2007.5.4.796
• 发表日期: 2007
• 页码: 796-822
• 关键词: PROPERTY-RIGHTS; TRADE; GLOBALIZATION; integration; OWNERSHIP; FDI

摘要

We introduce incomplete contracts in a model where multinational firms from a certain country (North) can decide to serve a foreign market (South) through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs that could be supplied either by northern suppliers or by suppliers located in South. Intermediate sourcing contracts are complete in North but not in South. Were southern contracts also complete, FDI would arise only when trade barriers are high enough. Incomplete contracts in South generate, instead, a non-linear relation between trade barriers and FDI as foreign investment emerges also when trade barriers are low enough. The reason is the positive effect that low trade barriers have on the bargaining power of final producers with respect to their southern suppliers.