The Veblen-Gerschenkron Effect of FDI in Mezzogiorno and East Germany



Distance and FDI when Contracts are

Incomplete*

Gianmarco I.P. Ottaviano^and Alessandro Turrini'

14 July 2002

Abstract

We introduce incomplete outsourcing contracts in an otherwise stan-
dard model of MNEs based on the trade-off between proximity and con-
centration. This has both positive and normative implications. As to the
former, incomplete outsourcing contracts can account for the observed
emergence of FDIs in large markets not only when trade costs are large
but also when trade costs are small. As to the latter implications, con-
tractual incompleteness alters someway dramatically the choice of supply
mode made when contracts are complete.

Keywords: Foreign direct investment, international trade costs, incomplete
contracts.

J.E.L. Classification: F23.

*Both authors would like to acknowledge support from the EU funded SER project on
“Labour market effects of Euroepan foreign investments”. The first author is grateful to the
Europ ean Commission for financial supp ort.

^Università ‘L.Bocconi’ Milano, GIIS Geneva, and CEPR.

^Università di Bergamo, UNCTAD, and CEPR.



More intriguing information

1. Structural Breakpoints in Volatility in International Markets
2. Exchange Rate Uncertainty and Trade Growth - A Comparison of Linear and Nonlinear (Forecasting) Models
3. How do investors' expectations drive asset prices?
4. THE ECONOMICS OF COMPETITION IN HEALTH INSURANCE- THE IRISH CASE STUDY.
5. BARRIERS TO EFFICIENCY AND THE PRIVATIZATION OF TOWNSHIP-VILLAGE ENTERPRISES
6. The English Examining Boards: Their route from independence to government outsourcing agencies
7. The name is absent
8. Langfristige Wachstumsaussichten der ukrainischen Wirtschaft : Potenziale und Barrieren
9. The name is absent
10. Implementation of Rule Based Algorithm for Sandhi-Vicheda Of Compound Hindi Words