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Title: Optimal policy for FDI incentives : an auction theory approach
Authors: Luski, Israel
Rosenboim, Mosi
Keywords: Investments, Foreign -- Government policy -- Case studies
Economic policy
International business enterprises
Issue Date: 2009
Publisher: University of Piraeus. International Strategic Management Association
Citation: Luski, I., & Rosenboim, M. (2009). Optimal policy for FDI incentives : an auction theory approach. European Research Studies Journal, 12(3), 61-76.
Abstract: A multinational corporation’s (MNC) entry into a host country brings benefits to the economy of that country, some direct (such as increasing production and employment) and some indirect (such as productivity spin-off). Governments that view MNCs as engines for growth and regional development have begun to encourage the flow of foreign investment into their country in hopes of increased local employment, market production and export capacity. MNCs consider first the maximization of profit when selecting a site to establish their subsidiaries. An MNC examines possible investment sites and indicates those that are best fitted for the investment. The countries that remain at this stage are similar in terms of their economic characteristics, and they compete with each other for receiving the foreign investment. In this paper we use tools from auction theory to analyze the competition between host countries and MNCs and investigate the existence of Nash equilibrium strategies. The characteristics of this equilibrium are considered and assessed. We developed a general model for examining the incentive competition between two countries and then apply it for several subgroups according to the number of MNCs and the availability of information. It turns out that the characteristics of the equilibrium depend on the number of MNCs as well as on the structure of their contribution to the host country economy.
ISSN: 11082976
Appears in Collections:European Research Studies Journal, Volume 12, Issue 3

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