Organization of Multinational Activities and Ownership Structure

We develop a model in which multinational investors decide about the modes of organization, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous effect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads to more integration

Strategies of Foreign Direct Investment in the Presence of Technological Spillovers

Dawid H, Zou B. Strategies of Foreign Direct Investment in the Presence of Technological Spillovers. Working Papers in Economics and Management. Vol 12-2013. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2013.In this paper we present a differential game model of two firms with different technologies producing the same good and selling in the same world market. The firm equipped with advanced technology is deciding whether to outsource parts of its production to the home country of its competitor, where wages and the level of technology are lower. Outsourcing reduces production costs but is associated with spillovers to the foreign competitor. The degree to which the foreign competitor can absorb these spillovers depends on its absorptive effort. Using numerical methods the properties of a Markov Perfect Equilibrium of this game are characterized and the implications of the variation of different key parameters are examined