IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v139y2016icp43-45.html
   My bibliography  Save this article

Competition, foreign direct investment and welfare

Author

Listed:
  • Mukherjee, Arijit
  • Sinha, Uday Bhanu

Abstract

In contrast to the usual belief, we show that a lower product-market competition may make the consumers better off and increase welfare when foreign firms strategically choose between export and foreign direct investment (FDI). A lower product-market competition may increase consumer surplus and welfare by inducing FDI. The higher welfare stems from the increased production efficiency under FDI compared to export by the foreign firm.

Suggested Citation

  • Mukherjee, Arijit & Sinha, Uday Bhanu, 2016. "Competition, foreign direct investment and welfare," Economics Letters, Elsevier, vol. 139(C), pages 43-45.
  • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:43-45
    DOI: 10.1016/j.econlet.2015.12.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176515005224
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.econlet.2015.12.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    2. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    3. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
    4. George Deltas & Alberto Salvo & Helder Vasconcelos, 2012. "Consumer-surplus-enhancing collusion and trade," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 315-328, June.
    5. George Symeonidis, 2008. "Downstream Competition, Bargaining, and Welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 247-270, March.
    6. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    7. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
    8. Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Buccella Domenico, 2019. "Strategic trade and FDI policies in a unionized industry," Economics and Business Review, Sciendo, vol. 5(1), pages 12-31, March.
    2. Dandan Wu & Wei Dong, 2022. "Does Local Government’s Competitive Behavior to Attract Foreign Investment Affect Ecological Welfare Performance? Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-24, October.
    3. Arijit Mukherjee & Uday Bhanu Sinha, 2024. "Product Market Cooperation, Foreign Direct Investment and Consumer Welfare," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(2), pages 315-326, March.
    4. Liu, Chih-Chen & Mukherjee, Arijit & Wang, Leonard F.S., 2016. "Product market cooperation, entry and consumer welfare," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 277-280.
    5. Fan, Weina & Anser, Muhammad Khalid & Nasir, Muhammad Hamid & Nazar, Raima, 2023. "Uncertainty in firm innovation scheme and impact of green fiscal policy; Economic recovery of Chinese firms in the post-Covid-19 era," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1424-1439.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    2. Lacetera, Nicola & Zirulia, Lorenzo, 2012. "Individual preferences, organization, and competition in a model of R&D incentive provision," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 550-570.
    3. Tishler, Asher & Milstein, Irena, 2009. "R&D wars and the effects of innovation on the success and survivability of firms in oligopoly markets," International Journal of Industrial Organization, Elsevier, vol. 27(4), pages 519-531, July.
    4. Kuang-Cheng Andy Wang & Yi-Jie Wang & Wen-Jung Liang, 2021. "Comparing Cournot and Bertrand Equilibria in the Presence of Spatial Barriers and R&D," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 475-491, May.
    5. Ghosh, Arghya & Kato, Takao & Morita, Hodaka, 2017. "Incremental innovation and competitive pressure in the presence of discrete innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 1-14.
    6. N. Lacetera & L. Zirulia, 2008. "Knowledge Spillovers, Competition, and R&D Incentive Contracts," Working Papers 624, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Ganguly, Madhuparna, 2021. "Competition and Innovation: the effects of scientist mobility and stronger patent rights," MPRA Paper 107831, University Library of Munich, Germany.
    8. Evangelia Chalioti, 2015. "Incentive contracts under product market competition and R&D spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(2), pages 305-328, February.
    9. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2011. "Timing of technology adoption and product market competition," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 513-523, September.
    10. Amanda De Pirro & Renaud Foucart, 2022. "Of Shrimp and Men," Working Papers 352589140, Lancaster University Management School, Economics Department.
    11. Leibowicz, Benjamin D., 2018. "Welfare improvement windows for innovation policy," Research Policy, Elsevier, vol. 47(2), pages 390-398.
    12. Lee, DongJoon & Choi, Kangsik & Nariu, Tatsuhiko, 2016. "Endogenous Choice of Price or Quantity Contract with Upstream R&D Investment: Linear Pricing and Two-part Tariff Contract with Bargaining," MPRA Paper 72752, University Library of Munich, Germany.
    13. Ioannou, Christos A. & Makris, Miltiadis & Ornaghi, Carmine, 2021. "R&D productivity and the nexus between product substitutability and innovation: Theory and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 135-151.
    14. Van Reenen, John, 2011. "Does competition raise productivity through improving management quality?," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 306-316, May.
    15. François Jeanjean, 2021. "Impact of Technical Progress on the Relationship Between Competition and Investment," Journal of Industry, Competition and Trade, Springer, vol. 21(1), pages 81-101, March.
    16. Anzhou Zhang, 2022. "Competition and the negative expected social value of cost‐reducing innovation," Manchester School, University of Manchester, vol. 90(1), pages 59-76, January.
    17. Paul Belleflamme & Cecilia Vergari, 2011. "Incentives To Innovate In Oligopolies," Manchester School, University of Manchester, vol. 79(1), pages 6-28, January.
    18. Philippe Aghion & Stefan Bechtold & Lea Cassar & Holger Herz, 2018. "The Causal Effects of Competition on Innovation: Experimental Evidence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 162-195.
    19. Lin, Ping & Zhou, Wen, 2013. "The effects of competition on the R&D portfolios of multiproduct firms," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 83-91.
    20. Younge, Kenneth A. & Tong, Tony W., 2018. "Competitive pressure on the rate and scope of innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 162-181.

    More about this item

    Keywords

    Competition; Consumer surplus; Foreign direct investment; Welfare;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:43-45. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.