International Rivalry in FDI Incentives and Strategic ResponsesInternational Rivalry in FDI Incentives and Strategic Responses
- Other Titles
- International Rivalry in FDI Incentives and Strategic Responses
- Authors
- 강문성
- Issue Date
- 2022
- Publisher
- 한국무역연구원
- Keywords
- Foreign Direct Investment; Strategic Investment Policy; Tax Incentives
- Citation
- 무역연구, v.18, no.1, pp.17 - 25
- Indexed
- KCI
- Journal Title
- 무역연구
- Volume
- 18
- Number
- 1
- Start Page
- 17
- End Page
- 25
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/139440
- DOI
- 10.16980/jitc.18.1.202202.17
- ISSN
- 1738-8112
- Abstract
- Purpose – As globalization continues to expand since the 1990s, competition for foreign direct investment (FDI) has intensified all over the world. This paper tried to explore strategic relationships among developing countries in a race to attract multinational corporations (MNCs).
Design/Methodology/Approach – This study established a game-theoretical model with three stages, where governments of potential host countries set their policies to attract MNCs and impose a tariff on imported products. In addition, MNCs make their own locational decision after realizing policy sets of incentives and tariffs.
Findings – This paper found that an MNC will make a locational decision considering market size, cost advantages, FDI incentives, and tariff burdens. This paper also found that countries with a smaller market size and a weaker cost advantage are likely to raise FDI incentives to attract MNCs. In addition, the host country will raise the FDI subsidy when a non-host rival country sets a higher tariff on exports of the host country. We also found that the non-host country, which lost the race of attracting the MNC, will raise its optimal tariff rate if it has a bigger market, and the host country has a weaker cost advantage. In addition, the non-host country will raise the optimal tariff rate when the host country provides a greater subsidy to the MNC.
Research Implications – One of critical findings in this study is that the host country has no first-mover advantage in a race of FDI subsidies because it needs to provide a greater subsidy to attract the MNC when it moves first by providing FDI subsidies, and then the non-host country will react by imposing a tariff against the exports of the host country to the market of the non-host country.
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