Foreign Direct Investment and the Welfare Effects of Cost Harmonization
AbstractForeign direct investment (FDI) gives foreign firms access to local labor and inputs, thereby harmonizing costs between foreign and domestic firms relative to exports. This paper investigates the welfare effects of such cost harmonization in strategic environments, finding that when the number of home firms is sufficiently close to the number of foreign firms, FDI reduces home welfare, whether FDI raises or decreases foreign firms' marginal costs. An implication is that under the same conditions, a country is harmed by tax harmonization on products that bring foreign taxes on product it imports inline with domestic ones for products.
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Bibliographic InfoPaper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0905.
Date of creation: Apr 2009
Date of revision:
Other versions of this item:
- Anthony Creane & Kaz Miyagiwa, 2009. "Foreign Direct Investment and the Welfare Effects of Cost Harmonization," ISER Discussion Paper 0741, Institute of Social and Economic Research, Osaka University.
- NEP-ALL-2009-06-17 (All new papers)
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