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On the FDI-attracting property of privatizatio

Author Info

  • Amerighi, Oscar
  • De Feo, Giuseppe

Abstract

In this paper, we provide an explanation of why privatization may attract foreign investors willing to enter a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit-maximizing output is lower than the welfaremaximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI and put forward its potentially positive role. On the one hand, it may reduce the negative impact on welfare of an FDI-attracting privatization. On the other hand, it may prevent a welfare-reducing investment by the foreign firm. This sheds light on the substitute/complementary relationship between the two policies and the two objectives of governments.

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File URL: http://hdl.handle.net/10943/138
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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2010-34.

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Date of creation: 2010
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Handle: RePEc:edn:sirdps:138
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Keywords: Foreign Direct Investment; Privatization; Policy Competition;

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Find related papers by JEL classification:
  • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
  • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
  • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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  16. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  17. Andreas Haufler & Ian Wooton, . "Country Size and Tax Competition for Foreign Direct Investment," Working Papers 9702, Business School - Economics, University of Glasgow.
  18. Mukherjee, Arijit & Suetrong, Kullapat, 2009. "Privatization, strategic foreign direct investment and host-country welfare," European Economic Review, Elsevier, vol. 53(7), pages 775-785, October.
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  20. Matthias Lutz, 2004. "Pricing in Segmented Markets, Arbitrage Barriers, and the Law of One Price: Evidence from the European Car Market," Review of International Economics, Wiley Blackwell, vol. 12(3), pages 456-475, 08.
  21. 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.
  22. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-11, April.
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