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On the FDI-Attracting Property of Privatization

Oscar Amerighi () and Giuseppe De Feo
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Oscar Amerighi: Dipartimento di Scienze Economiche, Universitˆ di Bologna

No 3_214, Working Papers from Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno

Abstract: In the present 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 welfare-maximizing 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 FDIattracting privatization. On the other hand, it may prevent a welfare-reducing investment by the foreign firm. This shows that privatization and fiscal policies may be either alternative or complementary instruments depending on the government's objective (i.e., country's attractiveness for foreign investors and domestic welfare)

Keywords: Foreign Direct Investment; Privatization; Tax/Subsidy Competition (search for similar items in EconPapers)
JEL-codes: H73 L33 (search for similar items in EconPapers)
Date: 2000
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Published in Working Papers, June 2010, pages 1-36

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Working Paper: On the FDI-attracting property of privatizatio (2010) Downloads
Working Paper: On the FDI-atrracting property of privatization (2010) Downloads
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