"Intraindustry Trade, Intraindustry Investment, and Welfare"

Hsiu-Yi CHAN and Kar-yiu WONG

on growth
and trade


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This paper examines how two international firms compete non-cooperatively by choosing domestic sale, export, and overseas investment, and investigates conditions for simultaneous existence of intraindustry trade and intraindustry investment. The roles of transport costs, market disadvantage, and tariff, and whether intraindustry trade and intraindustry are substitutes are explicitly analyzed. This paper determines the possibility of gains from trade and investment, and shows that in the presence of free trade, further allowing free investment is always beneficial. Competition between the firms in the long run in terms of input advantage is analyzed in a three-stage game.

Comments on this paper are most welcome. Please send them to karyiu@u.washington.edu.

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This page was last revised on January 24, 2000.