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Foreign Direct Investment, Local Content Requirement, and Profit Taxation

Author

Listed:
  • Lahiri, Sajal
  • Ono, Yoshiyasu

Abstract

The authors develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete in an oligopolistic market for a nontradeable commodity. The host country, assumed to be small in the market for FDI, makes use of two instruments, viz., a profit tax and a local content requirement, to compete for FDI in the international market. The authors assume the existence of unemployment in the host country. The structure of optimal instruments and their relationship to the number, and the relative efficiency levels, of the domestic firms are established.

Suggested Citation

  • Lahiri, Sajal & Ono, Yoshiyasu, 1998. "Foreign Direct Investment, Local Content Requirement, and Profit Taxation," Economic Journal, Royal Economic Society, vol. 108(447), pages 444-457, March.
    • Handle: RePEc:ecj:econjl:v:108:y:1998:i:447:p:444-57
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    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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