Fiscal competition for FDI when bidding is costly

We introduce bidding costs into a standard model of tax/subsidy competition between two potential host countries to attract the plant of a monopoly firm. Such a bidding cost, even if it is infinitesimal, qualitatively alters the resulting equilibrium. At most one country offers fiscal inducements to the firm, and this attenuates the familiar "race to the bottom" in corporate taxes. In general, the successful host country benefits from the resulting absence of active tax/subsidy competition, at the expense of the owners of the firm in the rest of the world

The search for trading partners and the cross-border merger decision.

We investigate the merger decision between two firms in an outsourcing relationship, one upstream and the other downstream. The inter-firm relationship is subject both to ex ante matching uncertainty and to contractual efficiency issues. Cross-border merger is assumed to solve the latter problem, but at the expense of curtailing the match-searching process. The trade-off between these two factors is assumed to determine the dynamics of foreign direct investment in this kind of industry.Trade, search, outsourcing, merger.

Strategic decisions of multinational enterprises: foreign direct investment and technology

This thesis consists of three self-contained chapters concerning the determination of 'equilibrium industrial structures' in 'international oligopolies'. In each model presented in the thesis rival oligopolists in the industry concerned choose their 'corporate structures' and then compete to serve the national product markets (either via local production following foreign direct investment (FDI) or via imports). Our analyses are united by the general types of 'corporate structure' choices considered and by the broad features of 'industrial structure' that are endogenously determined in equilibrium. We emphasise, the roles played by the following three phenomena in shaping 'equilibrium industrial structures': the distinction between greenfield-FDI ('greenfield investment') and acquisition-FDI (cross-border mergers and acquisitions); R&D investments and technology flows ('technology transfer') both within and between firms; and the potential entry into the industry of "outside' firms, and incumbent firms' strategic reactions to the entry threat. The distinction between greenfield-FDI and acquisition-FDI is both empirically and theoretically important: whereas greenfield-FDI adds an extra plant to the host country, acquisition-FDI changes only the ownership pattern of existing plants. Despite this, previous game-theoretic models of equilibrium FDI flows have concentrated exclusively on one type of FDL Therefore, allowing theform of FDI to be endogenously selected as part of the 'equilibrium industrial structure' is both a novel and an interesting feature of our analysis. It also allows us to investigate the differential relationships between the two types of FDI and industry R&D spending (and therefore to test a popular 'failing firm' defence of inward acquisition-FDI: that it fosters 'technological development', the benefits of which outweigh the welfare costs of increased 'concentration'). A further novel feature of our analysis is the potential for (de novo) entry into the industry (at a global level): previous work assumed blockaded entry. We show that a credible entry threat by 'outside' firms has significant consequences for 'equilibrium industrial structure'. At a general level, the results derived in this thesis provide a perspective on the relationship between MNEs' behaviour and industrial structure in 'globalized' industries that contrasts with that offered by Dunning's 'OLI paradigm'.I t is also hoped that this thesis will be viewed as having made a useful contribution to unpicking the aggregation, which frequently occurs in public debate, of greenfield-FDI and acquisition-FDI into a (supposedly homogeneous) flow of 'inward investment'

The search for trading partners and the cross-border merger decision

We investigate the merger decision between two firms in an outsourcing relationship, one upstream and the other downstream. The inter-firm relationship is subject both to ex ante matching uncertainty and to contractual efficiency issues. Cross-border merger is assumed to solve the latter problem, but at the expense of curtailing the match-searching process. The trade-off between these two factors is assumed to determine the dynamics of foreign direct investment in this kind of industry

On the efficiency of fiscal competition for FDI when incumbent firms are foreign-owned

We show that the international distribution of ownership of the incumbent firms within a host region matters for the efficiency of the fiscal competition between the region's constituent countries for a new FDI project. If incumbent firms are owned entirely within the host region, then the new plant's location will be efficient. However, when incumbent firms are owned outside the host region and the degree of such extra-regional ownership varies substantially across the competing host countries-as it does in the data-then inefficient locations might win contests for new plants

Wage-setting institutions and R&D collaboration networks

We analyse how union structures that differ in the degree of wage-setting centralisation affect the pattern of R&D network formation. Within the context of a three-firm industry, a central union that sets a uniform wage is shown to induce a partial R&D network that includes two firms but excludes the third. In contrast, we find that, under less centralised union structures, firms have incentives to form R&D networks with a larger number of alliances. This result is consistent with the stylised facts for industrialised countries: recent decades have seen an upsurge in R&D alliances along with labour market deregulation towards more flexible wage-setting institutions

Strategic decisions of multinational enterprises : foreign direct investment and technology

This thesis consists of three self-contained chapters concerning the determination of 'equilibrium industrial structures' in 'international oligopolies'. In each model presented in the thesis rival oligopolists in the industry concerned choose their 'corporate structures' and then compete to serve the national product markets (either via local production following foreign direct investment (FDI) or via imports). Our analyses are united by the general types of 'corporate structure' choices considered and by the broad features of 'industrial structure' that are endogenously determined in equilibrium. We emphasise, the roles played by the following three phenomena in shaping 'equilibrium industrial structures': the distinction between greenfield-FDI ('greenfield investment') and acquisition-FDI (cross-border mergers and acquisitions); R&D investments and technology flows ('technology transfer') both within and between firms; and the potential entry into the industry of "outside' firms, and incumbent firms' strategic reactions to the entry threat. The distinction between greenfield-FDI and acquisition-FDI is both empirically and theoretically important: whereas greenfield-FDI adds an extra plant to the host country, acquisition-FDI changes only the ownership pattern of existing plants. Despite this, previous game-theoretic models of equilibrium FDI flows have concentrated exclusively on one type of FDL Therefore, allowing theform of FDI to be endogenously selected as part of the 'equilibrium industrial structure' is both a novel and an interesting feature of our analysis. It also allows us to investigate the differential relationships between the two types of FDI and industry R&D spending (and therefore to test a popular 'failing firm' defence of inward acquisition-FDI: that it fosters 'technological development', the benefits of which outweigh the welfare costs of increased 'concentration'). A further novel feature of our analysis is the potential for (de novo) entry into the industry (at a global level): previous work assumed blockaded entry. We show that a credible entry threat by 'outside' firms has significant consequences for 'equilibrium industrial structure'. At a general level, the results derived in this thesis provide a perspective on the relationship between MNEs' behaviour and industrial structure in 'globalized' industries that contrasts with that offered by Dunning's 'OLI paradigm'.I t is also hoped that this thesis will be viewed as having made a useful contribution to unpicking the aggregation, which frequently occurs in public debate, of greenfield-FDI and acquisition-FDI into a (supposedly homogeneous) flow of 'inward investment'.EThOS - Electronic Theses Online ServiceEconomic and Social Research Council (Great Britain) (ESRC) (R0042993413)GBUnited Kingdo

Horizontal agreements and R&D complementarities: merger versus RJV

We study the decision of two firms within an oligopoly concerning whether to enter into a horizontal agreement to exploit complementarities between their R&D activities and if so, whether to merge or form a research joint venture (RJV). In contrast to horizontal merger and motivated by real-world evidence, we incorporate a probability that an RJV contract will fail to enforce R&D sharing. We find that a horizontal agreement always arises in equilibrium, which is consistent with empirical findings that R&D complementarities between firms positively influence the formation of horizontal agreements. The insiders’ merger/RJV choice involves a trade-off: While merger offers certainty that R&D complementarities will be exploited, it leads to a profit-reducing reaction by outsiders on the product market, where competition is Cournot. Greater contract enforceability (quality) and R&D investment costs both favour RJV. Interestingly, the insiders may choose to merge even when RJV contracts are always enforceable, and they may opt to form an RJV even when the likelihood of enforceability is negligible. We also explore the welfare implications of the firms’ merger/RJV choice

Firm heterogeneity in modelling foreign direct investment location decisions

This article investigates the probability of the FDI location decisions of multinational enterprises using a mixed logit panel data model, which is the most flexible discrete choice model. We employ a three-level data set, which includes over 1100 FDI location decisions into 13 alternative Central and Eastern European Countries (CEECs) over an 11-year period. Our empirical results on the effect of host country, industry and firm characteristics on the probability of undertaking FDI in a particular location are significant and consistent with the predictions of our theoretical model