Foreign direct investment and host country policies: A rationale for using ownership restrictions
This paper examines host governments' motivation for restricting ownership shares of multinational firms (MNFs) in foreign direct investment (FDI) projects. An MNF with a productivity advantage is willing to invest in a host country. The host government wants to capture the MNF's surplus yet cannot observe it due to the MNF's private information about its firm-specific advantage. In contrast, a joint venture (JV) partner might observe this surplus depending on its ownership share. The host government can alleviate its informational constraints by using ownership restrictions to force a JV. This calls into question the wisdom of calls for 'liberalizing' FDI flows by the wholesale elimination of domestic JV requirements. We show that the optimal mechanism involves ownership restrictions that decrease as the size of the MNF's firm-specific advantage increases.
Year of publication: |
2010
|
---|---|
Authors: | Karabay, Bilgehan |
Published in: |
Journal of Development Economics. - Elsevier, ISSN 0304-3878. - Vol. 93.2010, 2, p. 218-225
|
Publisher: |
Elsevier |
Keywords: | Ownership FDI Multinationals Regulation Asymmetric information |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Trade, offshoring, and the invisible handshake
Karabay, Bilgehan, (2010)
-
A Note on Equilibrium Uniqueness in the Baron-Ferejohn Model
Celik, Levent, (2011)
-
Trade Policy Making in a Model of Legislative Bargaining
Celik, Levent, (2011)
- More ...