An Oligopolistic Heckscher-Ohlin Model of Foreign Direct Investment
25 Pages Posted: 1 Jul 2008
Date Written: July 1, 2008
We develop a two-country, two-good, and two-factor model of international trade in which one of the sectors is perfectly competitive and the other one is oligopolistic. The oligopoly sector consists of a given number of identical firms for each country, but they are free to locate in any of the two countries. The allocation of the firms between the two countries is endogenously determined, and changes in factor prices play a crucial role in establishing this equilibrium. Under this framework we examine some of the traditional trade-theoretic issues and also carry out two comparative static exercises.
Keywords: FDI, Oligopoly, Heckscher-Ohlin model
JEL Classification: F12, F23
Suggested Citation: Suggested Citation