Reference : Welfare, home market effects, and horizontal foreign direct investment
Scientific journals : Article
Business & economic sciences : Economic systems & public economics
Welfare, home market effects, and horizontal foreign direct investment
Behrens, Kristian mailto [Université du Québec]
Picard, Pierre M mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Canadian Journal of Economics
Blackwell Publishing
Yes (verified by ORBilu)
[en] We investigate the spatial distribution and organization of an imperfectly competitive industry when firms may choose to operate more than a single production unit. Focusing on a short-run setting with a fixed mass of firms, we first fully characterize the spatial equilibria analytically. Comparing the equilibrium and the first-best, we secondly show that both organizational and spatial inefficiencies may arise. In particular, when fixed costs are low, when transport costs are high, and when products are close substitutes, the market outcome may well have to too many multinationals operating from a social point of view (`over-investment'). As a by-product, under-agglomeration of exporters in the larger market may arise.

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