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Privatization and policy competition for FDI


  • Oscar, AMERIGHI

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Giuseppe, DE FEO

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))


In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit-maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors.

Suggested Citation

  • Oscar, AMERIGHI & Giuseppe, DE FEO, 2008. "Privatization and policy competition for FDI," Discussion Papers (ECON - Département des Sciences Economiques) 2008002, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2008002

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    Cited by:

    1. Amerighi, Oscar & De Feo, Giuseppe, 2010. "On the FDI-attracting property of privatizatio," SIRE Discussion Papers 2010-34, Scottish Institute for Research in Economics (SIRE).

    More about this item


    foreign direct investment; tax competition; public firm; privatization;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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