This paper provides a theoretical setup for an analysis of strategic relationships inherent to activities of an innovative multinational enterprise (MNE) and a local company in a host country. Additionally, we explore the incentives of the host country's government to provide subsidies to...

We show that the static duopoly model in which firms choose between exporting and foreign direct investment is often a prisoners' dilemma game in which a switch from exporting to foreign direct investment reduces profits. By contrast, we show that when the game is repeated there is a range of...

We analyze tax competition between two countries of unequal size trying to attract a foreign-owned monopolist. When regional governments have only a lump-sum profit tax (subsidy) at their disposal, but face exogenous and identical transport costs for imports, then both countries will always...

The article summarises the main lessons of the Bank’s 2010 conference which focused on international trade and foreign direct investment. The research is based on a microeconomic approach to the behaviour of Belgian firms, with reference to developments in the scientific literature on the...

Oligopolists from two source countries invest in a common host country to take advantage of low costs. A selective subsidy to multinational production encourages foreign direct investment (FDI) from the favored country but crowds out FDI from the other source. Such a subsidy also shifts rents...

We endogenize the formation of domestic trade policy in a duopoly composed of a domestic firm and a foreign firm. The foreign firm can undertake foreign direct investment (FDI) in the domestic market should trade policies become too stringent. We model trade policy formation as a common agency...

Post-production services, such as sales, distribution, and maintenance, comprise a crucial element of business activity. A foreign firm faces a higher cost to perform such services than its domestic rival because of the lack of proximity to customers. We explore an international duopoly model in...

Note: The following is a description of the paper and not the actual abstract. We consider a model where firms from a high-cost source country shift some of their production to a low-cost host country. Firms earn profits since the output market is a Cournot oligopoly. Due to a fixed supply of...

This paper agrues that the prices of intermediates may influence the pattern of foreign direct investment (FDI). In our model, two downstream firms select whether to serve each other's markets through exports of FDI, always sourcing the intermediate good or service at the location of production....

We study the impact of foreign direct investment (FDI) policies when source firms locate some production in two host countries. By reducing its tax on multinational production, a host country can attract additional FDI, some of which is diverted from other host countries. The shift in FDI causes...