Coordinating FDI Policies Among Host Countries

OSU Department of Economics Working Paper No. 00-04

29 Pages Posted: 19 Aug 2000

See all articles by Amy Jocelyn Glass

Amy Jocelyn Glass

Texas A&M University - Department of Economics

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Date Written: April 11, 2000

Abstract

We study the impact of foreign direct investment (FDI) policies when source firms locate some production in two host countries. By reducing its tax on multinational production, a host country can attract additional FDI, some of which is diverted from other host countries. The shift in FDI causes host wages to rise while wages elsewhere fall. The host country with the smaller labor supply per firm, and hence the lower extent of FDI absent intervention, adopts a smaller tax on multinational production. The host countries can implement larger taxes by coordinating their policies to eliminate the FDI diversion effect.

Keywords: Foreign Direct Investment, Subsidies, Taxes, Oligopoly

JEL Classification: F12, F13, F23, L13

Suggested Citation

Glass, Amy Jocelyn and Saggi, Kamal, Coordinating FDI Policies Among Host Countries (April 11, 2000). OSU Department of Economics Working Paper No. 00-04, Available at SSRN: https://ssrn.com/abstract=235142 or http://dx.doi.org/10.2139/ssrn.235142

Amy Jocelyn Glass (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States
979-845-8507 (Phone)
979-847-8757 (Fax)

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

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