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Chapter 8: The Political Economy of Foreign Direct Investment
Chapter 8: The Political Economy of Foreign Direct Investment
[1] Do you think it is correct for the European Commission to restrict mergers
between American companies that do business in Europe? (For example, the
European Commission vetoed the proposed merger between WorldCom and
Sprint, both U.S. companies, and it carefully reviewed the merger between
AOL and Time Warner, again both U.S. companies).
Comments: The creation of the single market means that it may no longer be
efficient to operate separate duplicative production facilities in each country.
Instead, the facilities could either be linked so that each specializes in the
production of only certain items or several sites should be closed down and
production consolidated at the most efficient locations. Existing differences
between countries as well as the need to be located near important customers may
limit a firm’s ability to fully consolidate or relocate production facilities for
production cost reasons. Minimizing production costs is only one of many
objectives. For example, location of production near R&D facilities can be critical
for new product development. The location decision needs to examine long run
economic success, not just cost minimization.