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Privatization in a polluting industry in the presence of foreign competition

Author

Listed:
  • Bouwe R. Dijkstra
  • Anuj J. Mathew
  • Arijiy Mukherjee

Abstract

Recent evidence shows that developing countries and transition economies are increasing privatizing their public firms at the same time experiencing rapid growth of inward foreign direct investment (FDI). In an international mixed oligopoly, we analyze the interaction between privatization and FDI in the context of environmental pollution and regulation. We find that the FDI incentive generally increases with privatization. Under export, welfare increases with privatization calling for complete privatization. However, under FDI due to the increasing pollution effect resulting from the relocation, the optimal degree of privatization is partial. If the degree of privatization that is required to attract FDI is very high, such that the welfare under FDI is lower than the welfare under export, the host country will deter FDI through lower degree of privatization.

Suggested Citation

  • Bouwe R. Dijkstra & Anuj J. Mathew & Arijiy Mukherjee, 2012. "Privatization in a polluting industry in the presence of foreign competition," NCID Working Papers 08/2012, Navarra Center for International Development, University of Navarra.
    • Handle: RePEc:nva:unnvaa:wp08-2012
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    File URL: http://ncid.unav.edu/download/file/fid/859
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    File URL: http://link.springer.com/article/10.1007/s00712-014-0407-3
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    More about this item

    Keywords

    Emission taxation; Foreign Direct Investment; Trade; Privatization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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