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Direct Investment and Local Content Rules in the European Community


  • Andersson, Thomas

    (Research Institute of Industrial Economics (IFN))


This paper analyses the behaviour of competing governments in the EC with respect to inflows of direct investment. Solving a non-cooperative sequential bargaining game in which host countries gain from direct investment through tax revenue or imposition of forced local subcontracting, it is concluded that a successful 1992 program does not allow discrimination of direct investment. As they bid against each other for the attraction of projects, the EC countries will give away rents generated by protectionism. Hence, multinational firms may temper the emergence of trading 'blocs' through their ability to play individual countries against each other.

Suggested Citation

  • Andersson, Thomas, 1990. "Direct Investment and Local Content Rules in the European Community," Working Paper Series 288, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0288

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    References listed on IDEAS

    1. Chris Doyle & Sweder Wijnbergen, 1994. "Taxation of foreign multinationals: A sequential bargaining approach to tax holidays," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(3), pages 211-225, October.
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    More about this item


    Direct investment; Game theory; Multinational firms;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements


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