FDI Selection: Crowding Out and Distributional Effects
OSU Working Paper No. 99-03
34 Pages Posted: 23 Jun 1999
Date Written: June 7, 1999
Oligopolists from two source countries invest in a common host country to take advantage of low costs. A selective subsidy to multinational production encourages foreign direct investment (FDI) from the favored country but crowds out FDI from the other source. Such a subsidy also shifts rents across firms and alters wages. The source country with less natural tendency to conduct FDI in the host country receives the larger subsidy (or smaller tax). The source country receiving the smaller subsidy (or larger tax) loses relative to nonintervention but gains from a nondiscrimination clause requiring the host country to apply FDI policy equally across all firms.
JEL Classification: F12, F13, F23, L13
Suggested Citation: Suggested Citation