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Privatization and policy competition for FDI

De Feo, G. and Amerighi, O. (2008) Privatization and policy competition for FDI. Discussion paper. Université Catholique de Louvain.

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    Abstract

    In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit- maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors.

    Item type: Monograph (Discussion paper)
    ID code: 7233
    Keywords: foreign direct investment, tax competition, public firm, privatization, Commerce
    Subjects: Social Sciences > Commerce
    Department: Strathclyde Business School > Economics
    Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 18 Dec 2008 14:08
    Last modified: 14 Mar 2012 16:36
    URI: http://strathprints.strath.ac.uk/id/eprint/7233

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