The literature on FDI entry modes and corruption tends to convey the idea that corruption leads to a choice between low equity modes, i.e. joint ventures with local partners, and non-equity modes, namely exports and contracting, in order to avoid contact with corrupt state officials. Recently, some studies have argued that despite corruption, linguistic and historical ties between home and host countries lead MNCs to prefer high-equity modes. Focusing on a rather unexplored setting, the African countries, most specifically the Portuguese-speaking ones (PALOP – Países Africanos de Língua Oficial Portuguesa), which include countries where levels of corruption are very high (e.g., Guinea-Bissau and Angola), high (e.g., Mozambique, Sao Tome and Principe), and intermediate (e.g., Cape Verde), maintaining also close linguistic and historical ties with Portugal, we found that the FDI entry mode is associated with the less corrupt markets. Thus, our results do not support the recent contention that cultural and historical links are likely to perform a mediating role, by fostering foreign direct investment, in supporting African countries to overcome the dismal growth some have been facing in the last few decades. On the contrary, our findings highlight the pressing need for these countries to combat corruption if higher economic growth via FDI attraction is envisioned.

This paper develops a quantitative model for the entry mode choice of small and medium sized enterprises. Based on this model, we deduce several qualitative and quantitative propositions for decision makers, both in the companies concerned and in economic policy. In addition, we contrast our model and results with those of prior relevant works. Key words: foreign market entry mode choice; international marketing; quantitative model; small and medium sized enterprises

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. According to conventional wisdom, this calls for R&D subsidies. This paper develops a quality-ladder growth model with overlapping generations which evaluates the positive and normative implications of R&D subsidies and compares them with the effects of public education policy to promote R&D. Unlike standard growth models, the proposed framework accounts for the specificity of science and engineering (S&E) skills, where individuals endogenously choose the type of education, and allows for heterogeneity in individual ability. Although intertemporal knowledge spillovers are hypothesized and negative R&D externalities are absent, the analysis shows somewhat surprisingly that R&D subsidies may be detrimental to both productivity growth and welfare, in contrast to publicly provided education targeted to S&E skills. Finally, the optimal structure of public education spending on different skills is examined. Terms of use: Documents in JEL Classification: H20, O31, O38, O41.

The working papers published in the Series constitute work in progress circulated to stimulate discussion and critical comments. Views expressed represent exclusively the authors ’ own opinions and do not necessarily reflect those of the editors. Ruhr Economic Papers #161

The authors gratefully acknowledge financial support from the Leverhulme Trust under

F114/BF) is also gratefully acknowledged. All errors are entirely my own. Greenfield Investment versus Acquisition:

In a two-tier oligopoly model, we examine the foreign direct investment (FDI) entry decisions of an upstream intermediate good supplier and a downstream final good producer. We find that the FDI decisions of the two firms may be subject to a coordination problem that can be solved by an appropriately designed host country subsidy to FDI. Indeed, an FDI subsidy at one level of the industry may be sufficient to induce FDI at both levels. However, whether FDI at both levels is more desirable for the host country relative to FDI at only one level (or neither level) depends upon underlying market structure of the host industry. While vertical integration can also solve the coordination problem, the integrated firm finds it optimal to not supply the intermediate good to its downstream competitors in the host country. As a result, FDI by a vertically integrated unit fails to generate additional backward or forward linkages and can yield lower welfare than FDI by two independent firms even though vertical integration avoids the double marginalization problem.

The New Partnership for Africa’s Development (NEPAD) asserts that to meet its developmental challenges, Africa will have to rely more on foreign direct investment (FDI) than aid. Given the fact that aid flows to Africa have significantly declined over the years and that the continent has now to compete with other countries particularly former communist states in Eastern Europe for the same pool of resources needed for development, reliance on FDI is pragmatic. Nonetheless, the emphasis on FDI appears curious given that the continent has and continues to attract very low volumes of FDI as compared to other regions. Granted that FDI can be an important source of economic growth, it is also instructive that many of the African countries that attract or have attracted significant levels of FDI have made little progress in achieving sustainable economic growth. To understand this paradox, this paper looks at the factors that inform FDI inflows and Africa’s relative strength in relation to those factors.

We develop a model in which multinational investors decide about the modes of organi-zation, the locations of production, and the markets to be served. Foreign investments are driven by market-seeking and cost-reducing motives. We further assume that investors face costs of control that vary among sectors and increase in distance. The results show that (i) production intensive sectors are more likely to operate a foreign business independent of the investment motive, (ii) that distance may have a non-monotonous eect on the likelihood of horizontal investments, and (iii) that globalization, if understood as reducing distance, leads

When expanding abroad, a multinational bank faces a trade-o ¤ between accessing a foreign country via cross border lending or a …nancial foreign direct investment, i.e. green-eld or acquisition entry. We analyze the entry mode choice of multinational banks and explicitly derive the entry mode pattern in the banking industry. Moreover, we show that in less developed banking markets, a trend towards cross border lending and acquisition entry exists. Green…eld entry prevails in more developed markets. Furthermore, we iden-tify a tendency towards acquisition entry in small and towards green…eld entry in larger host countries.