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Double-edged incentive competition for foreign direct investment

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  • Jie Ma

    (University of International Business and Economics)

Abstract

This paper studies the impact of special interest lobbying on competition for foreign direct investment (FDI) in a common agency framework. We argue that special interest lobbying may provide an extra political incentive for governments to attract FDI. We show that compared with the benchmark case where governments maximize national welfare, now (1) an economically disadvantageous country has a chance to win FDI competition; (2) the equilibrium subsidy for attracting FDI is higher than in the benchmark case; (3) allocative efficiency cannot be always achieved.

Suggested Citation

  • Jie Ma, 2017. "Double-edged incentive competition for foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 282-312, April.
  • Handle: RePEc:kap:itaxpf:v:24:y:2017:i:2:d:10.1007_s10797-016-9409-0
    DOI: 10.1007/s10797-016-9409-0
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    Cited by:

    1. Kato, Hayato & Okoshi, Hiofumi, 2019. "Economic Integration and Agglomeration of Multinational Production with Transfer Pricing," Discussion Papers in Economics 62013, University of Munich, Department of Economics.
    2. Jie Ma & Ian Wooton, 2020. "Market size, product differentiation and bidding for new varieties," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 257-279, April.
    3. Kouassi YEBOUA, 2019. "Human capital and the FDI-Income inequality nexus in African countries: Panel smooth transition regression approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(618), S), pages 73-88, Spring.
    4. Yaya Keho, 2020. "Linkages between Foreign Direct Investment and Financial Development: Evidence from West African Countries," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(6), pages 1-3.
    5. repec:agr:journl:v:1(618):y:2019:i:1(618):p:73-88 is not listed on IDEAS

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    More about this item

    Keywords

    Foreign direct investment (FDI); Incentive competition; Special interest lobbying; Common agency;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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