The heterogeneous competitive effects of trade and foreign direct investment: Firm-level evidence for European countries

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  • John P. Weche

This study evaluates the pro-competitive effect of foreign market penetration with a broad firm-level database that covers manufacturing industries in six European countries. The main contribution is the demonstration of the heterogeneous effects on host country competition of the two main channels of foreign market penetration that have been assigned fundamental differences by economic theory: imports and foreign direct investment. The results of dynamic estimates of firm-level markups reveal a pro-competitive effect of imports, while foreign direct investment shows no clear overall impact, suggesting a cancelling out of competitive pressure and spillovers. These findings matter for both future empirical research and policy considerations that must weigh the positive and negative effects of foreign market integration on the competitive environment and consumer welfare.

Original languageEnglish
JournalWorld Economy
Issue number3
Pages (from-to)801-830
Number of pages30
Publication statusPublished - 03.2018
Externally publishedYes

    Research areas

  • competition, efficiency, foreign direct investment, markups, spillovers, trade
  • Economics