FDI in Post-Production Services and Product Market Competition

41 Pages Posted: 3 Jun 2008

See all articles by Jota Ishikawa

Jota Ishikawa

Hitotsubashi University-Faculty of Economics

Hodaka Morita

Hitotsubashi University - Institute of Economic Research

Hiroshi Mukunoki

Gakushuin University - Economics

Date Written: May 2008

Abstract

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 which a foreign firm can reduce its cost for post-production services by foreign direct investment (FDI), or alternatively can outsource such services to its domestic rival. Trade liberalization, if not accompanied by liberalization of service FDI, can hurt domestic consumers and decrease world welfare, but the negative welfare impacts can be mitigated and eventually turned into positive ones as service FDI is also liberalized. This finding yields important policy implications, given the reality that the progress of liberalization in service sectors is limited compared to the substantial progress already made in trade liberalization.

Keywords: Post-production services, trade liberalization, FDI, outsourcing, international oligopoly

JEL Classification: F12, F13, F21, F23

Suggested Citation

Ishikawa, Jota and Morita, Hodaka and Mukunoki, Hiroshi, FDI in Post-Production Services and Product Market Competition (May 2008). Available at SSRN: https://ssrn.com/abstract=1140003 or http://dx.doi.org/10.2139/ssrn.1140003

Jota Ishikawa (Contact Author)

Hitotsubashi University-Faculty of Economics ( email )

2-1 Naka, Kunitachi
Tokyo, Tokyo 186-8601
Japan
+81425808794 (Phone)

Hodaka Morita

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Hiroshi Mukunoki

Gakushuin University - Economics ( email )

1-5-1 Mejiro, Toshima-ku
Tokyo, 171-8588
Japan
+81-3-5992-1275 (Phone)
+81-3-5992-1007 (Fax)

HOME PAGE: http://sites.google.com/site/hiroshimukunoki/

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