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A Game Theory View of China and USA FDI Outflows: Static Cournot Model of Complete Information

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  • Robby Timothy Warioba
  • Kennedy Arthur Wainyaragania
  • Bassiratu Ballay Mansaray

Abstract

This study seeks to examine a game theory view of China and USA FDI outflows using the Static Cournot Model of Complete Information to show how the two countries can come into equilibrium. It is specifically aimed at establish, examining and analyzing the best and fair equilibrium on FDI outflows between the two countries. The study uses annual time series data for a range of 1982 to 2016 on both FDI outflows in China and USA. The study finds Game theory to be the efficient framework on finding the equilibrium of the conflict through Cournot Duopoly Model. The study employed cointegration analysis and OLS method to achieve the objective. The results showed that when game theory is applied in a static situation with complete information, Nash equilibrium is established both when the countries decide to cooperate or not to cooperate. But the gains are much higher when the countries decide to cooperate. The main conclusion is that, there is a conflict solving solution to the battle on FDI outflows between these countries if they decide not to cooperate. However, if both countries decide to cooperate then they will monopolize the FDI outflows market by higher levels and maximize the total gains.

Suggested Citation

  • Robby Timothy Warioba & Kennedy Arthur Wainyaragania & Bassiratu Ballay Mansaray, 2019. "A Game Theory View of China and USA FDI Outflows: Static Cournot Model of Complete Information," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(2), pages 99-107, June.
    • Handle: RePEc:khe:scajes:v:5:y:2019:i:2:p:99-107
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    References listed on IDEAS

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    4. David Wall, 1997. "Outflows of Capital from China," OECD Development Centre Working Papers 123, OECD Publishing.
    5. Lucas, Robert E. B., 1993. "On the determinants of direct foreign investment: Evidence from East and Southeast Asia," World Development, Elsevier, vol. 21(3), pages 391-406, March.
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    More about this item

    Keywords

    Game Theory; FDI outflows; Nash equilibrium; Cournot model;
    All these keywords.

    JEL classification:

    • B27 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - International Trade and Finance
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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