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Foreign Direct Investment For Sale

Author

Listed:
  • Onur Koska

    (Department of Economics, University of Tuebingen)

Abstract

This study examines the choice of a multinational firm between two alternative entry modes, a greenfield investment and a joint venture, under incomplete information. The joint venture partner is selected by an auction, which distinguishes this study from other studies in the literature. A private values auction allows a multinational firm to increase its share of the joint venture profit so that a joint venture is always preferable to greenfield investment. The model also examines the nationally optimal entry mode and finds that greenfield investment is likely to reduce welfare. The anticipated welfare implications of a joint venture crucially depend on the expectation of the marginal cost of the joint venture. Relative to a greenfield investment, a joint venture is welfare-improving if the negative impact of a joint venture on a local rival's profit is small.

Suggested Citation

  • Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers 0910, University of Otago, Department of Economics, revised Oct 2009.
    • Handle: RePEc:otg:wpaper:0910
    as

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    File URL: http://www.otago.ac.nz/economics/research/otago077125.pdf
    File Function: First version, 2009
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    References listed on IDEAS

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    Cited by:

    1. Onur A. Koska & Ilke Onur & Frank Stähler, 2018. "The scope of auctions in the presence of downstream interactions and information externalities," Journal of Economics, Springer, vol. 125(2), pages 107-136, October.
    2. Hakan Mıhcı & Selim Çağatay & Onur A. Koska, 2011. "The determinants of foreign direct investment outflows from the European Union countries," Economics Bulletin, AccessEcon, vol. 31(3), pages 2653-2666.

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    More about this item

    Keywords

    Foreign Direct Investment; Joint Venture; Incomplete Information; Auction with Externality;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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