Inter-region Competition for FDI

Osiris Parcero

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: This paper models inter-regional competition for FDI and optimal government policy intervention to protect the national interest. Two regional authorities bargain with a single multinational over where it will locate. This potentially leads to excessive competition between the regions, favouring the multinational. The federal government obviously wants to limit such competition but lacks information on comparative advantage. This paper examines its optimal policy. Among the main results we have the following two: First, the federal government would use tax policy to create asymmetries even when the underlying structure is symmetrical. Second, there are situations where, even though one MNC is more productive in one region, it is optimal for the country to make it go to the other one.

Keywords: Subsidy competition; FDI; bargaining (search for similar items in EconPapers)
JEL-codes: F23 H25 H71 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2004-05
New Economics Papers: this item is included in nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:bri:cmpowp:04/100

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