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Asymmetric oligopoly and foreign direct investment: implications for host-country tax-setting

Porter, L. A. (2012) Asymmetric oligopoly and foreign direct investment: implications for host-country tax-setting. International Economic Journal, 26 (2). pp. 229-246. ISSN 1743-517X

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To link to this item DOI: 10.1080/10168737.2011.552515

Abstract/Summary

We present a duopoly model with heterogeneous firms that vary in cost-efficiency, each of which can choose to serve a foreign market by either exporting or local production. We do so to analyse the effects of a host-country corporate profit tax on both the scale and composition of FDI, and find that: strategic interaction between oligopolistic firms provides for a pattern of FDI that favours cost-inefficiency to the detriment of host-country welfare; and the host-country tax rate can be optimally used to avoid such patterns of FDI and instead promote direct investment by a relatively cost-efficient firm.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:26380
Uncontrolled Keywords:Firm heterogeneity; oligopoly; trade; FDI; taxation
Publisher:Taylor & Francis Ltd

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