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On the FDI-Attracting Property of Privatization

Author

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  • Oscar Amerighi

    (Dipartimento di Scienze Economiche, Universitˆ di Bologna)

  • Giuseppe De Feo

    (Departments of Economics, University of Strathclyde)

Abstract

In the present 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 welfare-maximizing 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 FDIattracting privatization. On the other hand, it may prevent a welfare-reducing investment by the foreign firm. This shows that privatization and fiscal policies may be either alternative or complementary instruments depending on the government's objective (i.e., country's attractiveness for foreign investors and domestic welfare)

Suggested Citation

  • Oscar Amerighi & Giuseppe De Feo, 2000. "On the FDI-Attracting Property of Privatization," Working Papers 3_214, Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno.
  • Handle: RePEc:sep:wpaper:3_214
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    More about this item

    Keywords

    Foreign Direct Investment; Privatization; Tax/Subsidy Competition;
    All these keywords.

    JEL classification:

    • 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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