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Privatization, strategic foreign direct investment and host-country welfare

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  • Mukherjee, Arijit
  • Suetrong, Kullapat

Abstract

Recent evidence shows that developing countries and transition economies are increasingly privatizing their public firms and at the same time experiencing rapid growth of inward foreign direct investment (FDI). We show that there is a two-way causality between privatization and greenfield FDI. Privatization increases the incentive for FDI, which, in turn, increases the incentive for privatization compared to the situation of no FDI. The optimal degree of privatization depends on the cost difference of the firms, and on the foreign firm's mode of entry.

Suggested Citation

  • Mukherjee, Arijit & Suetrong, Kullapat, 2009. "Privatization, strategic foreign direct investment and host-country welfare," European Economic Review, Elsevier, vol. 53(7), pages 775-785, October.
  • Handle: RePEc:eee:eecrev:v:53:y:2009:i:7:p:775-785
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Wang, Leonard F.S. & Tomaru, Yoshihiro, 2015. "The feasibility of privatization and foreign penetration," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 36-46.
    2. Matsumura, Toshihiro, 2012. "Welfare consequence of an asymmetric regulation in a mixed Bertrand duopoly," Economics Letters, Elsevier, vol. 115(1), pages 94-96.
    3. Yang, Ya-Po & Wu, Shih-Jye & Hu, Jin-Li, 2014. "Market Structure, Production Efficiency, And Privatization," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(1), pages 89-108, June.
    4. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    5. Bouwe Dijkstra & Anuj Mathew & Arijit Mukherjee, 2015. "Privatization in the presence of foreign competition and strategic policies," Journal of Economics, Springer, vol. 114(3), pages 271-290, April.
    6. Reece, Christopher & Sam, Abdoul G., 2012. "Impact of Pension Privatization on Foreign Direct Investment," World Development, Elsevier, vol. 40(2), pages 291-302.
    7. Haraguchi, Junichi & Matsumura, Toshihiro, 2014. "Price versus quantity in a mixed duopoly with foreign penetration," Research in Economics, Elsevier, vol. 68(4), pages 338-353.
    8. Wang, Chia-Chi & Chiou, Jiunn-Rong, 2015. "An analysis of policy harmonization on privatization and trade liberalization," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 279-290.
    9. Wang, Leonard F.S. & Lee, Jen-yao & Hsu, Chu-chuan, 2014. "Privatization, foreign competition, and social efficiency of free entry," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 138-147.
    10. Campos, Nauro F. & Horváth, Roman, 2012. "On the reversibility of structural reforms," Economics Letters, Elsevier, vol. 117(1), pages 217-219.
    11. Shuai Niu, 2015. "Privatization in the presence of patent licensing," Journal of Economics, Springer, vol. 116(2), pages 151-163, October.
    12. Dong, Quan & Bárcena-Ruiz, Juan Carlos, 2014. "Corruption and decisions on opening up markets," Economic Modelling, Elsevier, vol. 36(C), pages 23-29.
    13. Mukherjee, Arijit & Sinha, Uday Bhanu, 2014. "Can cost asymmetry be a rationale for privatisation?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 497-503.
    14. repec:kap:jeczfn:v:120:y:2017:i:3:d:10.1007_s00712-016-0502-8 is not listed on IDEAS
    15. Amerighi, Oscar & De Feo, Giuseppe, 2010. "On the FDI-attracting property of privatizatio," SIRE Discussion Papers 2010-34, Scottish Institute for Research in Economics (SIRE).
    16. Ming Lin & Toshihiro Matsumura, 2012. "Presence of foreign investors in privatized firms and privatization policy," Journal of Economics, Springer, vol. 107(1), pages 71-80, September.

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