Attracting Foreign Direct Investment in Infrastructure

Dewit, Gerda and Leahy, Dermot (2018) Attracting Foreign Direct Investment in Infrastructure. Working Paper. Department of Economics, Finance & Accounting Working Paper N290-18. (Unpublished)

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We examine optimal policy of a host developing country towards a foreign firm that can provide local infrastructure. In the main model, two types of infrastructural goods, one provided by the foreign firm and the other by a publicly owned firm, are complementary inputs for a domestic competitive final goods sector. We show that, due to strategic interaction between the infrastructure providers, average-cost pricing, though inferior for the consumer, is superior to marginal-cost pricing from an overall welfare perspective. In addition, when the home firm maximises profit, domestic surplus is maximised, but the domestic consumer loses from this.

Item Type: Monograph (Working Paper)
Keywords: Developing Countries; Infrastructure; Foreign Direct Investment; Complementarities; Pricing Game; Regulatory Policies; Working Paper N290-18;
Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
Item ID: 9710
Depositing User: Ms Sandra Doherty
Date Deposited: 24 Jul 2018 16:02
Publisher: Department of Economics, Finance & Accounting Working Paper N290-18

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