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Competition for foreign direct investment when countries are not sure of site values

Author

Listed:
  • Koray Kiymaz

    (McKinsey & Company & Tulane University)

  • Leon Taylor

    (Dillard University)

Abstract

The fiscal tug-of-war between two countries to play host to a foreign- owned firm is like a Nash game. Suppose that the countries are not sure how much the firm values the sites that they offer to it. Also suppose that the countries fashion their expectation of site value by assigning the same likelihood to each value that they deem possible. Then, if they are quite unsure about site values, they will offer small subsidies to the firm. If they are pretty sure about site values, they will offer large subsidies. Here is the intuition behind the results: When a country is unsure about the value of its site, it is also unsure that a stingy offer will drive the firm to its rival. So it may take the chance and make a stingy offer rather than a generous one.

Suggested Citation

  • Koray Kiymaz & Leon Taylor, 1998. "Competition for foreign direct investment when countries are not sure of site values," International Trade 9812001, EconWPA, revised 19 May 1999.
  • Handle: RePEc:wpa:wuwpit:9812001
    Note: Type of Document - LaTex (DVI); prepared on IBM PC compatible; to print on HP Laserjet; pages: 20; figures: none
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    References listed on IDEAS

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    Cited by:

    1. Anyangah, Joshua Okeyo, 2010. "Financing investment in environmentally sound technologies: Foreign direct investment versus foreign debt finance," Resource and Energy Economics, Elsevier, vol. 32(3), pages 456-475, August.
    2. Nathan M. Jensen Washington University, Rene Lindstadt, Trinity College Dublin, 2009. "Leaning Right and Learning from the Left: Diffusion of Corporate Tax Policy in the OECD," The Institute for International Integration Studies Discussion Paper Series iiisdp290, IIIS.
    3. Hamid Beladi & Fathali Firoozi & Catherine Co, 2008. "Link Between Domestic R&D And Inflow Of Fdi: A Game-Theoretic Analysis," Pacific Economic Review, Wiley Blackwell, vol. 13(2), pages 209-222, May.

    More about this item

    Keywords

    tax competition; foreign direct investment;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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