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Host-country policy – commitment or no-commitment: a theoretical analysis

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  • Arijit Mukherjee

Abstract

This paper develops a model of foreign entry strategy and examines welfare of the host-country under two situations - (i) where host-country government commits to the tax policy, (ii) where host-country government does not commit to the tax policy. It turns out that under the non-committed government policy the foreign firm does not prefer to hold equity share in the domestic project. The host-country welfare, however, is more under the committed government policy than the non-committed government policy when the foreign firm has sufficiently higher bargaining power. The possibility of technology choice by the foreign firm reduces the range of bargaining power of the foreign firm over which the host-country welfare is more under the committed policy compared to the non-committed policy.

Suggested Citation

  • Arijit Mukherjee, 2001. "Host-country policy – commitment or no-commitment: a theoretical analysis," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(1), pages 75-89.
    • Handle: RePEc:taf:jpolrf:v:4:y:2001:i:1:p:75-89
    DOI: 10.1080/13841280008523414
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