IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Subsidy competition and the mode of FDI

  • Albornoz, Facundo
  • Corcos, Gregory
  • Kendall, Toby

We model subsidy competition for a foreign MNC's investment in two trading partners. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment. Competition between countries results in welfare losses, which are reinforced by positive externalities from the MNC's presence and regional integration. The results also apply to situations where the acquisition price accounts for the possibility of subsidies and when governments use acquisition subsidies as an alternative to greenfield subsidies.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 4 (July)
Pages: 489-501

in new window

Handle: RePEc:eee:regeco:v:39:y:2009:i:4:p:489-501
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  2. Rodney D. Ludema & Ian Wooton, 1998. "Economic Geography and the Fiscal Effects of Regional Integration," International Trade 9801001, EconWPA.
  3. Magnus Blomstrom & Ari Kokko, 2003. "The Economics of Foreign Direct Investment Incentives," NBER Working Papers 9489, National Bureau of Economic Research, Inc.
  4. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
  5. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," Munich Reprints in Economics 20270, University of Munich, Department of Economics.
  6. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  7. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of Foreign Entry, Technology Transfer, and FDI Policy," CEPR Discussion Papers 2870, C.E.P.R. Discussion Papers.
  8. Kugler, Maurice, 2006. "Spillovers from foreign direct investment: Within or between industries?," Journal of Development Economics, Elsevier, vol. 80(2), pages 444-477, August.
  9. Blyde, Juan & Kugler, Maurice & Stein, Ernesto, 2004. "Exporting vs. outsourcing by MNC subsidiaries: which determines FDI spillovers?," Discussion Paper Series In Economics And Econometrics 0411, Economics Division, School of Social Sciences, University of Southampton.
  10. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 360-71, May.
  11. Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2000. "Competing for Capital in a "Lumpy" World," CESifo Working Paper Series 252, CESifo Group Munich.
  12. Bertrand, Olivier, 2005. "On the Effects of Economic Integration on Greenfield Investments and Cross-border Mergers and Acquisitions Location Pattern," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 26-51.
  13. Keith Head & John Ries, 1997. "International Mergers and Welfare under Decentralized Competition Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 1104-23, November.
  14. Rod Falvey, 1998. "Mergers in Open Economies," The World Economy, Wiley Blackwell, vol. 21(8), pages 1061-1076, November.
  15. Pehr-Johan Norbäck & Lars Persson, 2008. "Globalization and profitability of cross-border mergers and acquisitions," Economic Theory, Springer, vol. 35(2), pages 241-266, May.
  16. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Munich Reprints in Economics 20408, University of Munich, Department of Economics.
  17. Andrew Charlton, 2003. "Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses," OECD Development Centre Working Papers 203, OECD Publishing.
  18. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:regeco:v:39:y:2009:i:4:p:489-501. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.