Distance and Foreign Direct Investment When Contracts Are Incomplete
构建模型分析跨国公司如何选择出口或对外直接投资，发现南方国家合同不完全时，贸易壁垒与FDI呈非线性关系，低贸易壁垒也能促进FDI，因为增强了最终生产商对南方供应商的议价能力。
We introduce incomplete contracts in a model where multinational firms from a certain country (“North”) can decide to serve a foreign market (“South”) through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs that could be supplied either by northern suppliers or by suppliers located in South. Intermediate sourcing contracts are complete in North but not in South. Were southern contracts also complete, FDI would arise only when trade barriers are high enough. Incomplete contracts in South generate, instead, a non-linear relation between trade barriers and FDI as foreign investment emerges also when trade barriers are low enough. The reason is the positive effect that low trade barriers have on the bargaining power of final producers with respect to their southern suppliers.