On the FDI-Attracting Property of Privatization

Oscar Amerighi, Giuseppe De Feo

Research output: Working paperDiscussion paper

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In this paper, we provide an explanation of why privatization may attract foreign investors willing to enter a regional market. Privatization turns the formerly-public firm into a less aggressive competitor since profit-maximizing output is lower than the welfaremaximizing one. The drawback is that social welfare generally decreases. We also investigate tax/subsidy competition for FDI and put forward its potentially positive role. On the one hand, it may reduce the negative impact on welfare of an FDI-attracting privatization. On the other hand, it may prevent a welfare-reducing investment by the foreign firm. This sheds light on the substitute/complementary relationship between the two policies and the two objectives of governments.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Number of pages28
Publication statusPublished - Feb 2010


  • foreign direct investment
  • privatization
  • policy competition


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