On the FDI-attracting property of privatizatio
Oscar Amerighi () and
Giuseppe De Feo ()
No 2010-34, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)
In this paper, we provide an explanation of why privatization may attract foreign investors willing to enter a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit-maximizing output is lower than the welfaremaximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI and put forward its potentially positive role. On the one hand, it may reduce the negative impact on welfare of an FDI-attracting privatization. On the other hand, it may prevent a welfare-reducing investment by the foreign firm. This sheds light on the substitute/complementary relationship between the two policies and the two objectives of governments.
Keywords: Foreign Direct Investment; Privatization; Policy Competition (search for similar items in EconPapers)
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Working Paper: On the FDI-atrracting property of privatization (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:138
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