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For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

Author

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  • Alessandro Turrini

    (Department of Economics, University of Bergamo, Centro Studi Luca d´Agliano)

  • Dieter M. Urban

    (Centro Studi Luca d´Agliano)

Abstract

Why do we observe some LDCs objecting the prospect of a Multilateral Agreement on Investment (MAI), although they have been keen to liberalize investment in preferential agreements in recent years? In this paper, we analyse the issue of MAI implementation and assess the welfare consequences of such kind of agreements. In our model, participation to MAI involves a trade-off between less rent extraction from multinational firms (MNEs) and more abundant FDI in‡ows. At equilibrium, either all countries enter MAI, or all countries stay out, or only some of them enter. Coordination problems may induce multiple equilibria: the three types of equilibria may coexist. So, the implementation of MAI may depend not only on structural factors but also on the general ”political climate”. When all countries join MAI, world welfare is maximized because this minimizes the hold-up problem faced by MNEs and stimulates investment. However, in an asymmetric world, welfare gains are not guaranteed for all countries.

Suggested Citation

  • Alessandro Turrini & Dieter M. Urban, 2001. "For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments," Development Working Papers 151, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:151
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    Cited by:

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    2. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series 1830, CESifo.

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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