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For Whom is MAI? A Theoretical Perspective on Multilateral Agreements on Investment

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  • Turrini, Alessandro
  • Urban, Dieter M

Abstract

Why do we observe some LDCs objecting to the prospect of a Multilateral Agreement on Investment (MAI), although they have been keen to liberalize investment in preferential agreements in recent years? In this Paper, we analyse the issue of MAI implementation and assess the welfare consequences of such a kind of agreement. In our model, participation in MAI involves a trade-off between less rent extraction from multinational firms (MNEs) and more abundant FDI inflows. At equilibrium, either all countries enter MAI, or all countries stay out, or only some of them enter. Coordination problems may induce multiple equilibria: the three types of equilibria may coexist. So, the implementation of MAI may depend not only on structural factors but also on the general ?political climate?. When all countries join MAI, world welfare is maximized because this minimizes the hold-up problem faced by MNEs and stimulates investment. However, in an asymmetric world, welfare gains for all countries are not guaranteed.

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  • Turrini, Alessandro & Urban, Dieter M, 2001. "For Whom is MAI? A Theoretical Perspective on Multilateral Agreements on Investment," CEPR Discussion Papers 2774, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2774
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    Cited by:

    1. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series 1830, CESifo.

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    More about this item

    Keywords

    Foreign direct investment; International agreements; Incomplete contracts; Adverse selection; Multiple equilibria;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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