Discussion paper

DP3419 Foreign Direct Investment and the Single Market

This Paper extends the theory of multinational corporations, identifying three distinct influences of internal trade liberalization by a group of countries on the level and pattern of inward foreign direct investment (FDI). First, the tariff-jumping motive encourages plant consolidation. Second, the export platform motive favours FDI with only a single union plant relative to exporting, and may induce a firm that has never exported to invest. Finally, reduced internal tariffs increase competition from domestic firms, which dilutes the other motives and may induce a ?Fortress Europe? outcome of multinationals leaving union markets even though external tariffs are unchanged.

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Citation

Neary, P (2002), “DP3419 Foreign Direct Investment and the Single Market”, CEPR Press Discussion Paper No. 3419. https://cepr.org/publications/dp3419