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For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

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  • Alessandro Turrini

    (Department of Economics, University of Bergamo, Centro Studi Luca d´Agliano)

  • Dieter M. Urban

    (Centro Studi Luca d´Agliano)

Abstract

Why do we observe some LDCs objecting 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 kind of agreements. In our model, participation to MAI involves a trade-off between less rent extraction from multinational firms (MNEs) and more abundant FDI in‡ows. 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 are not guaranteed for all countries.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 151.

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Date of creation: 01 Mar 2001
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Handle: RePEc:csl:devewp:151

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Keywords: Foreign Direct Investment; International Agreements; Incomplete;

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  1. Hoekman, Bernard & Saggi, Kamal, 1999. "Multilateral disciplines for investment-related policies," Policy Research Working Paper Series 2138, The World Bank.
  2. Schnitzer, Monika, 1998. "Expropriation and Control Rights: A Dynamic Model of Foreign Direct Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1891, C.E.P.R. Discussion Papers.
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  8. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 820-26, September.
  9. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, Elsevier, vol. 71(1), pages 121-139, January.
  10. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(2), pages 169-189, Spring.
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Cited by:
  1. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series 1830, CESifo Group Munich.

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