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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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Web page: http://www.elsevier.com/locate/regec

Related research

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

References

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  15. Pehr-Johan Norbäck & Lars Persson, 2008. "Globalization and profitability of cross-border mergers and acquisitions," Economic Theory, Springer, Springer, vol. 35(2), pages 241-266, May.
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  17. 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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Cited by:
  1. repec:tep:teppwp:wp1206 is not listed on IDEAS
  2. Kai Zhao, 2012. "Entry mode choice and target firm selection: private and collective incentive analysis," TEPP Working Paper, TEPP 2012-06, TEPP.
  3. Kai Zhao, 2011. "Entry mode choice and target firm selection: private and collective incentive analysis," Working Papers halshs-00856139, HAL.

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