Asymmetric Oligopoly and Foreign Direct Investment: Implications for Host-Country Tax-Setting
AbstractWe present a duopoly model with heterogeneous firms that vary in cost-efficiency, each of which can choose to serve a foreign market by either exporting or local production. We do so to analyse the effects of a host-country corporate profit tax on both the scale and composition of FDI, and find that: strategic interaction between oligopolistic firms provides for a pattern of FDI that favours cost-inefficiency to the detriment of host-country welfare; and the host-country tax rate can be optimally used to avoid such patterns of FDI and instead promote direct investment by a relatively cost-efficient firm.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal International Economic Journal.
Volume (Year): 26 (2012)
Issue (Month): 2 (June)
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Web page: http://www.tandfonline.com/RIEJ20
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- Peter Neary & Monika Mrazova, 2011.
"Selection Effects with Heterogeneous Firms,"
Economics Series Working Papers
588, University of Oxford, Department of Economics.
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