Working paper 04/100

Inter-region Competition for FDI (PDF, file 184 KB)

Osiris Parcero

This paper models inter-regional competition for FDI and optimal government policy intervention to protect the national interest. Two regional authorities bargain with a single multinational over where it will locate. This potentially leads to excessive competition between the regions, favouring the multinational. The federal government obviously wants to limit such competition but lacks information on comparative advantage. This paper examines its optimal policy. Among the main results we have the following two: First, the federal government would use tax policy to create asymmetries even when the underlying structure is symmetrical. Second, there are situations where, even though one MNC is more productive in one region, it is optimal for the country to make it go to the other one.

Note: some of the documents on this page are in PDF format. In order to view a PDF you will need Adobe Acrobat Reader