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Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield

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Author Info
Facundo Albornoz

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Abstract

We model subsidy competition for a foreign MNC’s investment in two potential PTA partners. Taking into account acquisitions as an alternative investment mode weakens the case for subsidising greenfield investment. Competition between countries results in welfare losses, even more so if spillovers from the MNC’s presence exist. Hence in many cases a ban on subsidies may increase welfare. In addition, we show how trade integration affects the prospects for social waste.

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Publisher Info
Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 05-15R.

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Length: 32 pages
Date of creation: Aug 2007
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Handle: RePEc:bir:birmec:05-15r

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Postal: Edgbaston, Birmingham, B15 2TT
Web page: http://www.economics.bham.ac.uk
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Related research
Keywords: Subsidy Competition; FDI; Greenfield Investment; Mergers and Acquisitions; Regional Integration; Spillovers;

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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  21. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2004. "Mode of foreign entry, technology transfer, and FDI policy," Journal of Development Economics, Elsevier, vol. 75(1), pages 95-111, October. [Downloadable!] (restricted)
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