Asymmetric Oligopoly and Foreign Direct Investment: Implications for Host-Country Tax-Setting

Lynda Porter ()

International Economic Journal, 2012, vol. 26, issue 2, 229-246

Abstract: We present a duopoly model with heterogeneous firms that vary in cost-efficiency, each of which can choose to serve a foreign market by either exporting or local production. We do so to analyse the effects of a host-country corporate profit tax on both the scale and composition of FDI, and find that: strategic interaction between oligopolistic firms provides for a pattern of FDI that favours cost-inefficiency to the detriment of host-country welfare; and the host-country tax rate can be optimally used to avoid such patterns of FDI and instead promote direct investment by a relatively cost-efficient firm.

Date: 2012
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/10168737.2011.552515

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