When technology transfer is costly, a foreign firm and host country government may differ in their preferences over direct entry and acquisition. Government intervention could help induce the socially preferred choice.Foreign direct investment can take place through the direct entry of foreign...

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...