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Inter-region Competition for FDI

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Author Info
Osiris Parcero ()

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Abstract

This paper models inter-regional competition for FDI and optimal government policy intervention to protect the national interest. Two regional authorities bargain with a single multinational over where it will locate. This potentially leads to excessive competition between the regions, favouring the multinational. The federal government obviously wants to limit such competition but lacks information on comparative advantage. This paper examines its optimal policy. Among the main results we have the following two: First, the federal government would use tax policy to create asymmetries even when the underlying structure is symmetrical. Second, there are situations where, even though one MNC is more productive in one region, it is optimal for the country to make it go to the other one.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp100.pdf
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Publisher Info
Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 04/100.

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Length: 21 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:bri:cmpowp:04/100

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Related research
Keywords: Subsidy competition; FDI; bargaining;

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September. [Downloadable!] (restricted)
  2. Litwack, John M. & Qian, Yingyi, 1998. "Balanced or Unbalanced Development: Special Economic Zones as Catalysts for Transition," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 117-141, March. [Downloadable!] (restricted)
  3. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 121-48, January. [Downloadable!] (restricted)
  4. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August. [Downloadable!] (restricted)
  5. Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers 25, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. King, Ian & Welling, Linda, 1992. "Commitment, Efficiency and Footloose Firms," Economica, London School of Economics and Political Science, vol. 59(233), pages 63-73, February. [Downloadable!] (restricted)
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This page was last updated on 2009-11-25.

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