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Business Networks and Inward FDI Policy
Author(s)
Date Issued
2008-11
Date Available
2015-02-19T12:21:10Z
Abstract
I outline the effect of business networks on trade, FDI and welfare in a two-country, two-firm duopoly. The network effect, following Greaney (2002), is modelled as a marginal cost disadvantage facing arm from Foreign in selling to Home. Unlike traditional trade costs, this cost cannot be avoided by investing in Home. My main addition is a Nash game between governments in which they subsidise the fixed costs of inward FDI. While the network effect is shown to lead to favourable outcomes for the Home firm, I show that once government subsidies to the fixed costs of FDI are included and welfare functions analysed, the network effect leads to asymmetric outcomes unfavourable to Home. This result can help inform the debate on countries' (in particular Japan's) international trade and investment relations.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
31
Series
UCD Centre for Economic Research Working Paper Series
WP08/23
Classification
F12
F23
L52
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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