Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield

Gregory Corcos and Toby Kendall Facundo Albornoz
Authors registered in the RePEc Author Service: Facundo Albornoz ()

Discussion Papers from Department of Economics, University of Birmingham

Abstract: We model subsidy competition for a foreign MNC’s investment in a two-country PTA. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment, even for a single government. Considering competition between member states, it widens the scope of harmful subsidy competition. While our predictions are sensitive to the acquisition price, we predict that in many cases a ban on subsidies may increase welfare. In addition, we show how trade integration and increased competition for targets raise the prospects for social waste. Finally, if FDI entails significant positive spillovers to the host country, fiercer competition for investment and greater welfare losses should be expected.

New Economics Papers: this item is included in nep-com
Date: 2005-10
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Related works:
Working Paper: Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:bir:birmec:05-15

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