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Product Market Competition and FDI Decisions

Published online by Cambridge University Press:  18 July 2022

Tiago Loncan Open the ORCID record for Tiago Loncan [Opens in a new window]
Tiago Loncan*
Affiliation:
King’s College London King’s Business School
*
[email protected]
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Abstract

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I examine whether competition from domestic industry rivals affects firms’ proclivity to undertake foreign direct investment (FDI) and their country location choices. I find that competition affects foreign production decisions and the geography of international investments. While firms enduring stiffer competition are significantly less likely to undertake FDI, this effect is heterogeneous across firms. Competition deters FDI more strongly when costs are heavier, whereas it has weaker effects when efficiency is higher, growth opportunities are valuable, and cash reserves are higher. FDI location models suggest that when going abroad, firms facing stronger competition are more likely to pursue economies of productivity and taxation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2617 - 2656
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I am grateful to Dimitris Andriosopoulos, Warren Bailey, Eric de Bodt (the referee), Sabri Boubaker, Jarrad Harford (the editor), Andrew Marshall, Syrine Sassi, Philip Valta, and the participants at the 2021 Royal Economic Society Conference, the 2021 Financial Management Association Annual Meeting, and the 2021 IFABS Oxford Conference for helpful comments and suggestions. Any errors are my own.

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