Optimal policy for FDI incentives: An auction theory approach
A multinational corporation’s (MNC) entry into a host country brings benefits to the economy of that country, some direct (such as increasing production and employment) and some indirect (such as productivity spin-off). Governments that view MNCs as engines for growth and regional development have begun to encourage the flow of foreign investment into their country in hopes of increased local employment, market production and export capacity. MNCs consider first the maximization of profit when selecting a site to establish their subsidiaries. An MNC examines possible investment sites and indicates those that are best fitted for the investment. The countries that remain at this stage are similar in terms of their economic characteristics, and they compete with each other for receiving the foreign investment. In this paper we use tools from auction theory to analyze the competition between host countries and MNCs and investigate the existence of Nash equilibrium strategies. The characteristics of this equilibrium are considered and assessed. We developed a general model for examining the incentive competition between two countries and then apply it for several subgroups according to the number of MNCs and the availability of information. It turns out that the characteristics of the equilibrium depend on the number of MNCs as well as on the structure of their contribution to the host country economy.
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.:
- Bjorvatn, Kjetil & Eckel, Carsten, 2006.
"Policy competition for foreign direct investment between asymmetric countries,"
European Economic Review,
Elsevier, vol. 50(7), pages 1891-1907, October.
- 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.
- Eleftherios Thalassinos & Theodoros Kyriazidis & John Thalassinos, 2006. "The Greek Capital Market: Caught in Between Poor Corporate Governance and Market Inefficiency," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 3-24.
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- repec:prg:jnlefa:v:2008:y:2008:i:3:id:83:p:44-61 is not listed on IDEAS
- Eleftherios Thalassinos & Pantelis E. Thalassinos, 2006. "Stock Markets' Integration Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 3-14.
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