ساختار بازار درون زا و منافع حاصل از سرمایه گذاری مستقیم خارجی

This paper discusses the gains from liberalizing foreign direct investment (FDI) in a two-country setting with endogenous market structure. We investigate two different scenarios. In the first scenario, headquarters costs are large in the foreign country so that the industry is located in the domestic country only. In this case, multinational and national firms may coexist and market concentration may make FDI welfare improving for the foreign country and welfare reducing for the domestic country. In the second scenario, headquarters costs are symmetric and firms will be located in both countries. Here, profitable FDI activities lead to mutual welfare gains, irrespective of market structure effects.

This study examines the welfare and the market structure effects of foreign direct investment (FDI) in a two-country model in which the choice of FDI and market entry are both endogenous. The paper is motivated by the fact that these effects of FDI are thus far relatively poorly understood in comparison with the effects of trade. In recent years, however, economic integration has increasingly taken the form of FDI, rather than that of trade. FDI has been growing at a high rate, and trade barriers have fallen extensively at the same time. The World Investment Report of the United Nations estimates sales of foreign affiliates at USD 18.5 trillions in the year 2001, whereas exports of goods and non-factor services amounted to USD 7.4 trillions in the same period.1 In other words, the value of aggregate production of multinational firms in host countries nowadays outweighs aggregate exports. This paper focuses on the case where FDI and exports are perfect substitutes as often found in the empirical literature.2 The model we employ is similar to the setting employed in Horstmann and Markusen (1992), but with free entry/exit.3 Market entry is considered by Markusen and Venables, 1998 and Markusen and Venables, 2000 but—given the complexity of their models—Markusen and Venables rely on numerical solutions.4 In this paper we develop a way of solving analytically models with multinational firms, international trade and free entry/exit. We employ a model of imperfect competition in which firms may enter the market either as a national firm or as a multinational firm. Both types of firms face the same production costs in serving the domestic market. However, in serving the foreign market, the national firm faces additional trade costs, while the multinational firm faces additional fixed costs in setting up a production plant abroad. It is this trade-off between higher marginal costs and higher fixed costs of production which determines the profitability of FDI. Under the hypothesis that the parameter values are such that FDI is profitable, we study how FDI changes market structure and welfare in both countries by comparing a regime under which FDI is prohibited with a regime under which FDI is allowed. Therefore, FDI liberalization is treated as a policy shift, and the condition that no firm gains unilaterally by switching its type and no firm has an incentive to enter or to leave the market then determines the equilibrium market structure. Following the eclectic paradigm of Dunning (1977), firms are induced to invest abroad if, in addition to location advantages (i.e. lower production costs), they have ownership advantages (i.e. patent, blueprint, or trade secret), and internalization advantages (i.e. strategic reasons to exploit its ownership advantage internally rather than licensing it to a foreign firm). Thus, we assume that firms need specific skills to be able to run their headquarters. We measure this requirement by the necessary labor input. Since the labor input needed to set up the headquarters of an oligopolistic firm may differ substantially from country to country, we explore the economic implications of FDI by using two alternative scenarios as reference points. In the first scenario, the specific skills to run the headquarters are asymmetrically distributed across both countries so that input requirements for headquarters services are substantially larger in one country, say the foreign country. In this case, firms cannot be run in the foreign country without suffering losses so that market entry will occur only in the domestic country. In the FDI-allowed regime there are, depending on parameter values, three types of equilibria. If the cost of establishing a foreign plant is sufficiently high, allowing FDI has no effect: all firms remain national and serve the foreign market by exports as in the FDI-prohibited regime. If the cost is sufficiently low, all firms are multinational and serve each market through local production in the FDI-allowed regime. For intermediate values of setting up a foreign plant, national and multinational firms coexist. If FDI is profitable, competition becomes tougher in the foreign country with the emergence of multinational firms, because these firms have a marginal cost advantage relative to national firms. The intermediate case of coexistence of national and multinational firms then warrants that the overall number of (national and multinational) firms is reduced. Due to this change in market structure, domestic welfare declines whereas foreign welfare improves. If FDI costs are low enough, only multinational firms remain profitable. In that case, the foreign country gains from FDI but the domestic welfare change depends (inversely) on the size of FDI costs. In the second scenario, the skills to run headquarters are symmetrically distributed across countries. In this case, firms are established in both countries. If FDI is prohibited, our model coincides with the reciprocal dumping model of Brander and Krugman (1983) in which each country hosts the same number of national firms. Conversely, if FDI is allowed and profitable, we show that FDI does not allow any national firm to survive, and all firms are multinational in equilibrium. Also in this case market concentration may (but does not necessarily) occur because multinational firms have to carry larger fixed costs and their size must be larger than that of national firms. Irrespective of the impact of FDI on market entry, we find that FDI is unambiguously mutually welfare improving. Therefore, this result emphasizes the negative role of trade costs on welfare, as often found in the literature. As intra-industry trade compared to autarky, so intra-industry FDI compared to intra-industry trade is mutually welfare enhancing with endogenous market structures. Table 1 summarizes the main assumptions and results of the paper. Table 1. Summary of assumptions and results Cost structure Headquarters costs are large in the foreign country Headquarters costs are symmetric Location Headquarters are located in the domestic country only Headquarters are located in both countries FDI-prohibited regime Inter-industry trade Intra-industry trade FDI-allowed regime FDI and inter-industry trade FDI and intra-industry trade Coexistence of both types of firms Possible Impossible Impact on domestic welfare Depends on market structure Positive Impact on foreign welfare Positive Positive Table options The remaining parts of the paper are structured as follows. Section 2 presents the framework of the model. Section 3 explores the effects of FDI liberalization on market structure and welfare, when headquarters are located only in the domestic country. Section 4 discusses the implications of FDI liberalization, when headquarters are located in both countries. Section 5 concludes the paper.

This paper has examined the impact of FDI on market structure and welfare. We have distinguished between two different scenarios concerning headquarters costs: • Headquarters costs are relatively large in the foreign country so that they are located in the domestic country only. In this case, trade and FDI are of the inter-industry type. • Headquarters costs are symmetric in both countries. In that case, trade and FDI are of the intra-industry type. Given these two different cases, we have studied the impact of liberalizing FDI on market structure and welfare by comparing the FDI-allowed regime with the FDI-prohibited regime. We have shown that, if the headquarters are located in the domestic country only, the FDI-allowed regime as compared with the FDI-prohibited regime leads to welfare losses for the domestic country, but to welfare gains for the foreign country when national and multinational firms are both active. National and multinational firms may coexist for moderately large FDI costs because FDI affects competition only in the foreign market. If only multinational firms emerge, the welfare of the foreign country improves, whereas the impact on the welfare of the domestic country depends on the size of FDI costs. FDI liberalization also has an impact on market structure: if both firms coexist, the number of active firms decreases; if only multinational firms are active, their number may be smaller or larger than the number of national firms in the case of no FDI. In this latter case, we have shown that domestic welfare improves only if FDI increases the number of active firms. It must be noted, however, that an increase in the number of firms and—due to entry of multinational firms—an increase in aggregate fixed costs alone cannot be expected to improve welfare, but would imply an increase in prices. In order to improve domestic welfare, it is essential that multinational firms save large trade costs. In other words, the increase in the profitability of the foreign market must be sufficiently large so that the number of active firms increases. The results are different if the headquarters are located in both countries. As FDI alters competition in both markets, coexistence of both types of firms is not possible so that either only national or only multinational firms are active. Under parameter values that make FDI profitable, the FDI-allowed regime implies that national firms are completely replaced by multinational firms. In this case, we have shown that the FDI-allowed regime leads to mutual welfare gains in comparison with the FDI-prohibited regime. The reason is that consumers have to bear trade costs in the FDI-prohibited regime which are saved by multinational firms. Furthermore, multinational firms dominate national firms if and only if the additional fixed costs are sufficiently low and trade costs are sufficiently substantial so that average costs are lower with FDI. This case demonstrates that FDI, as compared with trade, leads to mutual welfare gains just as trade, as compared with autarky, leads to mutual welfare gains if the market structure is endogenous and firms' headquarters may locate in either of the countries involved.