Journal of Economics

, Volume 114, Issue 3, pp 271–290 | Cite as

Privatization in the presence of foreign competition and strategic policies

  • Bouwe R. Dijkstra
  • Anuj Joshua Mathew
  • Arijit Mukherjee


Recent evidence shows that developing and transition economies are increasingly privatizing their public firms and also experiencing rapid growth of inward foreign direct investment (FDI). In an international mixed oligopoly with strategic tax/subsidy policies, we analyze the interaction between privatization and FDI. We find that the incentive for FDI increases with privatization. However, the possibility of FDI reduces the degree of privatization. Our paper shows that FDI policies reducing the fixed-cost of undertaking FDI may need to complement the privatization policies to attract FDI and to improve domestic welfare.


Privatization Product tax/subsidy Foreign direct investment Trade Privatization 

JEL Classification

F12 F18 F21 L33 



The author would like to acknowledge the support through a Research Project Funding (Ref: ECO2010-18680) from Ministerio de Ciencia E Innovacion, (Ministry of Science & Innovation), Spain. We thank an anonymous referee of this journal for the useful comments and suggestions received. The authors are solely responsible for the views presented here but not their organizations. The usual disclaimer applies.


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Copyright information

© Springer-Verlag Wien 2014

Authors and Affiliations

  • Bouwe R. Dijkstra
    • 1
    • 2
  • Anuj Joshua Mathew
    • 3
    • 4
  • Arijit Mukherjee
    • 2
    • 5
    • 6
  1. 1.School of Economics and GEPUniversity of NottinghamNottinghamUK
  2. 2.CESifoMunichGermany
  3. 3.Analytical Services DirectorateMinistry of JusticeLondonUK
  4. 4.Government Economic Service (GES)LondonUK
  5. 5.CFGELoughborough UniversityLoughboroughUK
  6. 6.RCIECity University of Hong KongKowloonHong Kong

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