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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.

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

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

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Handle: RePEc:eee:regeco:v:39:y:2009:i:4:p:489-501
Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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