Competition for FDI with vintage investment and agglomeration advantages

Wettbewerb um ausländische Direktinvestitionen mit "vintage investment" und Agglomerationsvorteilen

Kai Konrad and Dan Kovenock

Discussion Papers, Research Unit: Market Processes and Governance from WZB Berlin Social Science Center

Abstract: Countries compete for new FDI investment, whereas stocks of FDI generate agglomeration benefits and are potentially subject to extortionary taxation. We study the interaction between these aspects in a simple vintage capital framework with discrete time and infinite horizon, focussing on Markov perfect equilibrium in stationary strategies. We show that the tax revenue in the equilibrium is substantial, and higher on “old FDI than on new FDI, even though countries are not allowed to use discriminatory taxation. Moreover, the agglomeration advantage is valuable, but is exploited in the short run and can be unstable over time.

Keywords: Dynamic tax competition; vintage capital; agglomeration; foreign direct investment; bidding for firms (search for similar items in EconPapers)
JEL-codes: F21 H71 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Competition for FDI with vintage investment and agglomeration advantages (2009)
Working Paper: Competition for FDI with vintage investment and agglomeration advantages (2009)
Working Paper: Competition for FDI with vintage investment and agglomeration advantages (2009)
Working Paper: Competition for FDI with Vintage Investment and Agglomeration Advantages (2008)
Working Paper: Competition for FDI with vintage investment and agglomeration advantages (2008)
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