Subsidy Competition and the Mode of FDI

Albornoz, Facundo; Corcos, Gregory; Kendall, Toby

doi:10.2139/ssrn.1015885

Subsidy Competition and the Mode of FDI

39 Pages Posted: 21 Sep 2007 Last revised: 28 Nov 2009

See all articles by Facundo Albornoz

Gregory Corcos

Norwegian School of Economics (NHH) - Department of Economics

Toby Kendall

University of Birmingham

Date Written: January 18, 2008

Abstract

We model subsidy competition for a foreign MNC's investment in two trading partners. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment. Competition between countries results in welfare losses, even more so if positive externalities from the MNC's presence exist. Hence in many cases a ban on subsidies may increase welfare. In addition, we show how trade integration affects the prospects for social waste.

Keywords: Subsidy Competition, FDI, Greenfield Investment, Mergers and Acquisitions, Regional Integration, Spillovers

JEL Classification: F15, F21, F23

Suggested Citation: Suggested Citation

Albornoz, Facundo and Corcos, Gregory and Kendall, Toby, Subsidy Competition and the Mode of FDI (January 18, 2008). Available at SSRN: https://ssrn.com/abstract=1015885 or http://dx.doi.org/10.2139/ssrn.1015885