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Subsidy competition and the mode of FDI

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  • Albornoz, Facundo
  • Corcos, Gregory
  • Kendall, Toby

Abstract

We model subsidy competition for a foreign MNC's investment in two trading partners. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment. Competition between countries results in welfare losses, which are reinforced by positive externalities from the MNC's presence and regional integration. The results also apply to situations where the acquisition price accounts for the possibility of subsidies and when governments use acquisition subsidies as an alternative to greenfield subsidies.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 4 (July)
Pages: 489-501

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Handle: RePEc:eee:regeco:v:39:y:2009:i:4:p:489-501

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Related research

Keywords: Subsidy competition FDI Greenfield investment Mergers and acquisitions Regional integration Positive externalities;

References

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  1. 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.
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  6. Blyde, Juan & Kugler, Maurice & Stein, Ernesto, 2004. "Exporting vs. outsourcing by MNC subsidiaries: which determines FDI spillovers?," Discussion Paper Series In Economics And Econometrics 0411, Economics Division, School of Social Sciences, University of Southampton.
  7. Andrew Charlton, 2003. "Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses," OECD Development Centre Working Papers 203, OECD Publishing.
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  12. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
  13. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
  14. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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  16. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
  17. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
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Citations

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Cited by:
  1. repec:tep:teppwp:wp1206 is not listed on IDEAS
  2. Kai Zhao, 2011. "Entry mode choice and target firm selection: private and collective incentive analysis," Working Papers halshs-00856139, HAL.
  3. Kai Zhao, 2012. "Entry mode choice and target firm selection: private and collective incentive analysis," TEPP Working Paper 2012-06, TEPP.

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