Curses or Blessings: How Low Asset Mobility Helps Foreign Firms Gain Government Support

77 Pages Posted: 18 Feb 2021 Last revised: 11 Sep 2021

See all articles by Haosen Ge

Haosen Ge

Princeton University - Department of Political Science

Date Written: September 10, 2021

Abstract

Low asset mobility is often seen as undermining the bargaining power of foreign investors. This article advances an alternative view that emphasizes the positive effects of low asset mobility. I argue that governments favor foreign firms with lower mobility because their commitment to stay is always more credible. I present a formal model to illustrate how (1) governments’ preference for economic gains and (2) investment competition intensity determine the political effect of asset mobility. I empirically evaluated my theoretical predictions using two studies in China. First, leveraging a change in enterprise income tax law in 2008, I used a difference-in-differences design to examine the effect of ex post asset mobility on government treatment. Second, I fielded an original survey of foreign firms’ employees in China to test the theoretical mechanisms. My findings suggest that, on average, governments favor immobile foreign firms over their mobile peers. This study showed that the role of asset mobility in government–investor bargaining is more nuanced in this era of globalization.

Keywords: Asset Mobility, FDI, China

Suggested Citation

Ge, Haosen, Curses or Blessings: How Low Asset Mobility Helps Foreign Firms Gain Government Support (September 10, 2021). Available at SSRN: https://ssrn.com/abstract=3761295 or http://dx.doi.org/10.2139/ssrn.3761295

Haosen Ge (Contact Author)

Princeton University - Department of Political Science ( email )

Corwin Hall
Princeton, NJ 08544-1013
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
32
Abstract Views
206
PlumX Metrics