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Location of Foreign Direct Investment in Vertically Related Markets

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  • Chrysovalantou Milliou

Abstract

We provide an alternative explanation for the commonly observed FDI in developed countries (DCs) considering a vertically related market structure and endogenizing vertical technology transfer (VTT). We show that even though VTT is more costly in a less developed country (LDC), a multinational does not always transfer less technology there than in a DC. Moreover, we show that a multinational sometimes locates its FDI in a DC where, although downstream competition is stronger than in a LDC, it can obtain the input at better terms due to VTT. Independently of whether the host country is more or less developed, FDI is always welfare-enhancing.

Suggested Citation

  • Chrysovalantou Milliou, 2013. "Location of Foreign Direct Investment in Vertically Related Markets," CESifo Working Paper Series 4117, CESifo.
    • Handle: RePEc:ces:ceswps:_4117
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    Cited by:

    1. Chrysovalantou Milliou, 2014. "Location for Foreign Direct Investment in Vertically Related Markets," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 326-341, May.
    2. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    3. Chrysovalantou Milliou & Apostolis Pavlou, 2014. "Foreign Direct Investment Modes and Local Backward Linkages," CESifo Working Paper Series 4623, CESifo.
    4. Scalamonti, Francesco, 2024. "The foreign investments-growth nexus in underdeveloped countries: the state-of-art of research analysing a selected and recent empirical literature (2020-2022)," Technological Forecasting and Social Change, Elsevier, vol. 198(C).

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    More about this item

    Keywords

    foreign direct investment; host country; vertical relations; developed countries;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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