Multinational Investment in Developing Countries explores the struggle for gains from direct investment between multinationals and developing countries. The author explains differences in taxation and nationalization between countries, and considers how direct investments can best contribute to social welfare worldwide.
Using game-theory models, and taking into account that the developing countries also compete with each other to attract investors, Thomas Andersson shows that policies which manipulate the behavior of firms do not normally distort direct investments, while policies that interfere with ownership do. He also demonstrates that governments that maximize social welfare should not be expected to sacrifice the environment to attract multinationals. Shifts in nationalization across countries demonstrate a problem in coordination. This study shows that many equilibria exist, with either "many" or "few" countries pursuing the policy. This study is especially relevant at a time when the possibility of a revival of nationalization in the Third World exists.
