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

  • Koray Kiymaz

    (McKinsey & Company & Tulane University)

  • Leon Taylor

    (Dillard University)

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.

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Paper provided by EconWPA in its series International Trade with number 9812001.

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Length: 20 pages
Date of creation: 08 Dec 1998
Date of revision: 23 Dec 1998
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
Contact details of provider: Web page: http://128.118.178.162

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  1. King, I. & McAfee, R.P. & Welling, L., 1990. "Industrial Blackmail," Papers 130, Calgary - Department of Economics.
  2. King, Ian & Welling, Linda, 1992. "Commitment, Efficiency and Footloose Firms," Economica, London School of Economics and Political Science, vol. 59(233), pages 63-73, February.
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  4. Wilson, J.D., 1990. "Tax Competition With Interregional Differences In Factor Endowments," Working Papers 4, John Deutsch Institute for the Study of Economic Policy.
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  13. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
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  18. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
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