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Competition, foreign direct investment and welfare

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  • 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
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    References listed on IDEAS

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    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.
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    7. George Symeonidis, 2008. "Downstream Competition, Bargaining, and Welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 247-270, March.
    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.
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    Citations

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    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.

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    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

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