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Privatization, Incentive Delegation and Foreign Direct Investment

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  • Arijit Mukherjee
  • Kullapat Suetrong

Abstract

Despite the empirical relevance, the privatization literature paid little attention to the effects of the owner-manager relationship and the implications of foreign direct investment (FDI). We focus on these aspects, and show the relationship between privatization and greenfield FDI when the owners design strategic managerial incentive contracts. We show that there is complementarity between privatization and greenfield FDI. Whether incentive delegation (compared to no incentive delegation) increases the degree of privatization in the presence of FDI is ambiguous; it depends on whether the degree of privatization that attracts FDI is higher or lower than the degree of privatization that maximizes domestic welfare under FDI. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Arijit Mukherjee & Kullapat Suetrong, 2013. "Privatization, Incentive Delegation and Foreign Direct Investment," Open Economies Review, Springer, vol. 24(4), pages 657-676, September.
    • Handle: RePEc:kap:openec:v:24:y:2013:i:4:p:657-676
    DOI: 10.1007/s11079-012-9251-7
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    More about this item

    Keywords

    Privatization; Greenfield FDI; Welfare; Incentive contract; D43; F12; F13; F23; L13; L33; O25;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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