Working Paper Series
Direct Investment and Local Content Rules in the European Community
Abstract: This paper analyses the behaviour of competing governments
in the EC with respect to inflows of direct investment. Solving a
non-cooperative sequential bargaining game in which host countries gain
from direct investment through tax revenue or imposition of forced local
subcontracting, it is concluded that a successful 1992 program does not
allow discrimination of direct investment. As they bid against each other
for the attraction of projects, the EC countries will give away rents
generated by protectionism. Hence, multinational firms may temper the
emergence of trading 'blocs' through their ability to play individual
countries against each other.
Keywords: Direct investment; Game theory; Multinational firms; (follow links to similar papers)
JEL-Codes: C72; C78; F21; (follow links to similar papers)
26 pages, December 1990
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