Foreign market entry under incomplete contracts
نویسنده
چکیده
I show in this paper that incomplete contracts affect a firm’s decision about serving foreign customers through exports or local sales from an affiliated plant. When contracts between two agents within a firm are too costly to write, the share of multinational firms may be higher or lower compared to a world without contractual frictions. Incomplete contracts also provide a novel explanation for why horizontal multinational activity may increase when trade costs fall a result that is at odds with the proximity-concentration trade-off. JEL-Code: F12, F15, F23.
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