Foreign Direct Investment, Local Content Requirement, and Profit Taxation

Lahiri, Sajal; Ono, Yoshiyasu

doi:10.1111/1468-0297.00297

Cited by 77 publications

(54 citation statements)

References 23 publications

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“…It may be optimal to set an equilibrium tax below the Pigouvian level for internalizing environmental damages through the tempered ability of the government to shift rent. Kayalica and Lahiri [5] present strategic environmental policies in the context of foreign direct investment (FDI), with their model being extended to consider the role of free entry and to allow the amount of FDI to be endogenous as in Lahiri and Ono [6]. Moreover, they introduce a trade instrument, i.e., export subsidy, to examine how it affects the results of environmental policies.…”

Section: Literature Reviewmentioning

confidence: 99%

Environmental Standard, Quality Improvement, and Technology Transfer

Chang¹,

Pan

2014

TOENVIRJ

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With technology licensing on quality innovation becoming a general phenomenon in the industry, this study focuses on the impact of quality improvement under different environmental standards. We established a three-country model to analyze the actions taken by the domestic firm located in the home country with high quality technology, the foreign firm located in the foreign country with low quality technology, and the products they export to the third country. The importing country also decides on an environmental standard for reducing environmental pollution. Our major findings are: (1) A less strict environmental standard is preferable for the third country government in the beginning, but the government will become stricter with the increasing substitution of products in the long term. (2) In the aspect of licensing, the higher quality firm tends to provide an option to draw up a royalty licensing contract rather than a fixed-fee licensing contract. (3) The social welfare of the high quality firm is always higher than that of the low quality firm, but it will decrease with the increasing substitution of products. Coming from the increasing substitution of products, the excess profit that is created for the low quality firm is used as a cost for pollution abatement. Therefore, the social welfare of the foreign country does not change when the substitution of product changes. This model fully illustrates the real case of mainland China and enriches the field of technology licensing on quality innovation.JEL Codes: L11, L51, O13.

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Section: Literature Reviewmentioning

confidence: 99%

Environmental Standard, Quality Improvement, and Technology Transfer

Chang¹,

Pan

2014

TOENVIRJ

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“…In Lahiri and Ono (1998), this could consist of price-reducing competition and employment gains. In Haaland and Wooton (1999) …”

Section: The Basic Modelmentioning

confidence: 99%

Competition in Taxes and Performance Requirements for Foreign Direct Investment

Davies

Ellis

2003

SSRN Journal

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Tax incentives offered to attract firms engaged in foreign direct investment are often tied to performance requirements such as domestic content restrictions. The tax competition literature has repeatedly shown that competition between municipalities for mobile firms tends to drive taxes to low levels. One would expect a comparable result for burdensome performance requirements. Despite this, the evidence suggests that while taxes have indeed been driven down, performance requirements are as popular as ever. We explain this seeming conundrum by showing that in the presence of spillovers, binding performance requirements can act as a coordination device for firms. In equilibrium, municipalities choose performance requirements which maximize joint surplus from investment. Competition between municipalities then transfers this surplus to firms via tax subsidies. JEL Classification: F21, F23, H25.

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“…These questions are not new. One line of previous studies investigate the economic aspects of local content by focusing on diffusion of technology transfer, vertical integration and division of work (Kwon and Chun, 2009;Tallman and Phene, 2007;Aharonson et al, 2007), effects of enhanced local content on welfare (Veloso, 2006;Takechi and Kiyono, 2003), local content effects on Foreign Direct Investments (Lahiri and Ono, 1998;Qui and Tao, 2001;Jensen and Tarr, 2008), and experience with local content requirements from the perspective of industrialized countries (Pursell, 2001). Others scrutinize the vertical (backward) linkages between foreign multinationals and local suppliers.…”

Section: Introductionmentioning

confidence: 99%