The Oversea Investment Decision of a Vertically Integrated Multinationals - A Research in View of the Monopolistic Competition Frame

This paper investigates the following factors: population scale; income level; the expenditure proportion on industrial products; wages level; transaction costs; elasticity of substitution; marginal costs ,which functions acted on the vertical FDI scale of host country from developed country in a monopolistic competition model composed of the developed country enterprises and the developing country enterprises. On this foundation trying to study the possible scale of the vertical FDI in China. This paper mainly concludes the following: Vertical FDI flows to the developing countries which economic development levels are at a certain stage from developed countries generally. Under the conditions for vertical FDI entering into, along with the lower of wage level, elasticity of substitution, marginal costs and transaction costs, and the higher of population scale, expenditure proportion of industrial goods and income level of host country, the scale of vertical FDI to host country will more and more big. Vertical FDI mainly flowed to the eastern littoral in China, but its attraction to vertical FDI is dying down little by little