The Impact Of FDI On Market Structure Of Host Country

With the continuous development of China's economy and the notable improvement of investment environment, foreign direct investment (FDI) in China has persistently increased. Most of investors are always satisfied with the environment and full of confidence in the development of China. Although the investment of transnational corporations (TNCs) in most developing countries decreased in 2006, FDI in china still kept increasing. At the same time, TNCs, such as Toyota, has invested in a large scale in east Asia, and Japanese corporate leadership in South-East Asia,Now, FDI and TNCs are playing more and more important roles in specialization and division. Major changes in the world have sharply altered the strategy of TNCs and the policy objectives of host governments. FDI has a great effect on the market structure of host countries, especially on the emerging and transit economies with lowered barriers to entry. We are paying more and more attentions to the effect of FDI on market structure and industrial performance of host countries.Research on the effect of FDI on market structure and performance of host country is still one of the frontiers of international investment, and it is also one of the research fields combining industrial organization theory with international investment theory. Theoretical reseach on this area always goes ahead of empirical analysis. There is a large number of empirical analysis and theoretical reseach on the effect of FDI on market structure of developed host countries. The new trends and transitions of FDI make people begin to question on the difference of effects on market structure relative with greenfield FDI and non-greenfield FDI. Based on the Cournot madel and B-S-M modle, people try to explain the effect of FDI on market structure and performance of host countries. The distribrition of benefits from FDI between TNCs and host countries always depends on the competitive structure of markets in the host countries. So, the effect of FDI on host countries is predicated on its influence on the market structure of host countries.With the entry into WTO, the lowered barriers and improved investment environment has effectively promoted the continuous enlargement of FDI in China. And there has been some new trends of FDI in China. Firstly, with the enlargement of domestic market size and the vigorous demand in China, market-oriented FDI has quickly increased in recent years. Secondly, with the globalization of economy and the development of mergers and acquisitions (M&A) in the world, capital market has improved in China and M&A is playing more and more important role in the development of China's economy. We begin to pay more and more attentions to the effect of FDI on China's market structure, industrial performance, international competitiveness and technology transformation. People try to analyze the distribution of benefits from FDI between domestic firms and TNCs. As the engine of globalization and specialization, FDI can affectively promote the movement of goods and capital. For China, research on FDI and market structure is helpful with the improvement of performance and efficiency.In this thesis, author does some theoretical research on the effect of FDI on market structure and performance of host countries, the difference of effect on market structure of greenfield FDI and non-greenfield FDI, at-entry and post-entry effects on structure, and then makes an empirical analysis on China's auto-industry. Compared with the relative research already existing, this thesis tries to carry on exploratory research in several following respects:First, author makes a theoretical reseach and compare the different effects of FDI and import on market structure and competition. Second, combining industrial organization theory with international inverstment theory, author does some research on the effects of greenfield FDI and M&A on concentration and barriers to entry of host countries, and compares the differences. Third, author makes an empirical analysis on China's auto industry and analyses the effects of FDI on China's market structure , considering the change and new characters of FDI in China.This thesis can be divided into the following main parts:firstly, anthor makes a reviews on the theoretical research and empitical analysis. On this basis, he analyses the determinants of TNCs entry patterns and compares the difference of the structural effects of TNC entry on concentration and barriers to entry. Then, he compares the different effects of TNC entry via M&A and greenfield FDI.Secondly, on the basis of review on existing analysis, using Cournot model and B-S-M model, author make a theoretical research on the effects on scales and market size, concentration and barriers to entry of greenfield FDI and M&A separately. Then, he analyses the transition of market structure in the world range and the impact of international rivalry on market structure of host countries.Finally, author makes an empirical analysis on the effect of FDI on market structure and economic performance of China's auto industry and finds that although there are many different effects of greenfield FDI and M&A on market structure, both entry patterns can increase competition and promote the adjustment of market structure in host counties. There is an oligopolistic market structure in China's auto industry.