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Foreign Direct Investment, Local Content Requirement, and Profit Taxation

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  • Lahiri, Sajal
  • Ono, Yoshiyasu

Abstract

The authors develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete in an oligopolistic market for a nontradeable commodity. The host country, assumed to be small in the market for FDI, makes use of two instruments, viz., a profit tax and a local content requirement, to compete for FDI in the international market. The authors assume the existence of unemployment in the host country. The structure of optimal instruments and their relationship to the number, and the relative efficiency levels, of the domestic firms are established.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 108 (1998)
Issue (Month): 447 (March)
Pages: 444-57

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Handle: RePEc:ecj:econjl:v:108:y:1998:i:447:p:444-57

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Cited by:
  1. Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series 166, Research Institute for Economics & Business Administration, Kobe University.
  2. Hiroaki Ino & Toshihiro Matsumura, 2013. "Asymmetric welfare implication between a small number of leaders and a small number of followers in Stackelberg models," Discussion Paper Series 098, School of Economics, Kwansei Gakuin University, revised Jan 2013.
  3. Kazuhiro Takauchi, 2011. "Rules of origin and international R&D rivalry," Economics Bulletin, AccessEcon, vol. 31(3), pages 2319-2332.
  4. Martin Richardson, 1998. "Foreign entry and domestic welfare," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(2), pages 250-262, June.
  5. Davies, Ronald B. & Ellis, Christopher J., 2007. "Competition in taxes and performance requirements for foreign direct investment," European Economic Review, Elsevier, vol. 51(6), pages 1423-1442, August.
  6. Amy Glass & Kamal Saggi, 1999. "FDI Selection: Crowding Out and Distributional Effects," Working Papers 99-03, Ohio State University, Department of Economics.
  7. Ronald B Davies & Hartmut Egger & Peter Egger, 2007. "Tax Competition for International Producers and the Mode of Foreign Market Entry," Working Papers 0711, Oxford University Centre for Business Taxation.
  8. Svetlana Raudonen, 2008. "The Impact of Corporate Taxation on Foreign Direct Investment: a Survey," Working Papers 182, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
  9. repec:ebl:ecbull:v:6:y:2004:i:24:p:1-9 is not listed on IDEAS
  10. Toshihiro Matsumura, 2003. "Strategic R and D investments with uncertainty," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-7.
  11. Jung Hur & Yohanes E. Riyanto, 2004. "On the Role of Local Content Requirement in Defusing the Threat of Quid-Pro-Quo FDI," Econometric Society 2004 Far Eastern Meetings 641, Econometric Society.
  12. Toshihiro Matsumura & Noriaki Matsushima, 2009. "A small firm leads to curious outcomes: Social surplus, consumer surplus, and R&D activities," ISER Discussion Paper 0742, Institute of Social and Economic Research, Osaka University.
  13. Lahiri, Sajal & Mesa, Fernando, 2006. "Local content requirement on foreign direct investment under exchange rate volatility," International Review of Economics & Finance, Elsevier, vol. 15(3), pages 346-363.
  14. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
  15. Qiu, Larry D. & Tao, Zhigang, 2001. "Export, foreign direct investment, and local content requirement," Journal of Development Economics, Elsevier, vol. 66(1), pages 101-125, October.
  16. Muhammad Azam & Muhammad Khan & Nasir Iqbal, 2012. "Impact of Political Risk and Uncertainty on FDI in South Asia," Transition Studies Review, Springer, vol. 19(1), pages 59-77, September.
  17. repec:kgu:wpaper:98 is not listed on IDEAS

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