28
the hands of nationals of the respective country can - when there is not outright legal discrimination - be explained by the existence of information barriers. Domestic producers may be expected to have an information advantage over foreign producers through their familiarity with the local market, with the language, with cultural, legal and institutional peculiarities of their own country. Such information is available to domestic producers free, a by-product of being a resident, as it were, while foreign producers contemplating production in the country would have to expend resources in aquiring it. This establishes the case against direct investment. l
The economics of imperfect competition Direct investment nevertheless occurs and it occurs because foreign producers sometimes can earn more by producing locally than domestic producers could. The reasons for this have mainly been sought in the economics of imperfeet competition. Thus, it has been suggested that foreign investors possess a monopolistic advantage over domestic producers enabling them to overcome the disadvantage of operating in another country. The names inil
Note that the information disadvantage of foreign produeers is only a deterrent in making the initial deeision to establish a foreign subsidiary. Onee information regarding the foreign market has been gathered and onee the subsidiary is operating abroad, there are, on these grounds, no differenee between foreign and domestie piodueers. Henee, foreign produeers need only ineur a onee and for all eost to overeome.their initial information disadvantage and this, in turn, only requires an offsetting initial advantage on their part. In addressing this question few writers have distinguished between sourees of eompetitive advantage to foreign investors whieh are only initial, on the one hand, and, on the other, those whieh are permanent in the sense of allowing a permanently higher rate of growth. Hufbauer [1973], however, does.