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FOREIGN DIRECT INVESTMENT IN A TWO-TIER OLIGOPOLY: COORDINATION, VERTICAL INTEGRATION, AND WELFARE*

2011; Wiley; Volume: 52; Issue: 4 Linguagem: Inglês

10.1111/j.1468-2354.2011.00667.x

1468-2354

Ping Lin, Kamal Saggi,

Corporate Finance and Governance

International Economic ReviewVolume 52, Issue 4 p. 1271-1290 FOREIGN DIRECT INVESTMENT IN A TWO-TIER OLIGOPOLY: COORDINATION, VERTICAL INTEGRATION, AND WELFARE* Ping Lin, Ping Lin Lingnan University, Hong Kong; Vanderbilt University, U.S.A.Search for more papers by this authorKamal Saggi, Kamal Saggi Lingnan University, Hong Kong; Vanderbilt University, U.S.A. We thank the co-editor Charles Horioka and three anonymous referees for extremely helpful comments on an earlier draft of this article. All errors are our own. Please address correspondence to: Ping Lin, Department of Economics, Lingnan University of Hong Kong, Tuen Mun, Hong Kong. Telephone (852)-2616-7203. E-mail: plin@ln.edu.hk.Search for more papers by this author Ping Lin, Ping Lin Lingnan University, Hong Kong; Vanderbilt University, U.S.A.Search for more papers by this authorKamal Saggi, Kamal Saggi Lingnan University, Hong Kong; Vanderbilt University, U.S.A. We thank the co-editor Charles Horioka and three anonymous referees for extremely helpful comments on an earlier draft of this article. All errors are our own. Please address correspondence to: Ping Lin, Department of Economics, Lingnan University of Hong Kong, Tuen Mun, Hong Kong. Telephone (852)-2616-7203. E-mail: plin@ln.edu.hk.Search for more papers by this author First published: 23 November 2011 https://doi.org/10.1111/j.1468-2354.2011.00667.xCitations: 6 † Manuscript received June 2009; revised May 2010. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Abstract We study foreign direct investment (FDI) by two independent investors/entrants into a two-tiered oligopolistic industry. An FDI subsidy at a single stage of production can be sufficient to resolve the coordination problem facing investors thereby inducing entry at both stages. However, due to linkage offsetting, FDI at both stages may yield lower domestic welfare than FDI at a single stage. Vertical integration not only solves the coordination problem, it also eliminates double marginalization. But since the integrated multinational does not sell the intermediate to local firms, its entry generates no vertical linkages and can yield lower welfare than FDI by independent firms. Citing Literature Volume52, Issue4November 2011Pages 1271-1290 RelatedInformation