Privatization and policy competition for FDI

Oscar Amerighi () and Giuseppe De Feo

No 2008002, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: In this paper, we provide an explanation of why privatization may attract foreign investors interested in entering a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit-maximizing output is lower than the welfare-maximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI before and after privatization. We show that policy competition is irrelevant in the presence of a public firm serving just its domestic market. By contrast, following privatization, it endows the big country with an instrument which can be used either to reduce the negative impact on welfare of an FDI-attracting privatization or to protect the domestic industry from foreign competitors.

Keywords: foreign direct investment; tax competition; public firm; privatization (search for similar items in EconPapers)
JEL-codes: F12 F23 H25 H73 L13 L33 (search for similar items in EconPapers)
Pages: 32
Date: 2008-02-01
New Economics Papers: this item is included in nep-com, nep-mic and nep-pbe
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Citations: View citations in EconPapers (2)

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Working Paper: Privatization and policy competition for FDI (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvec:2008002

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