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Governance, foreign direct investment and domestic welfare

Maiti, Dibyendu S. and Mukherjee, A. (2013) Governance, foreign direct investment and domestic welfare. International Review of Economics and Finance, 27 . pp. 406-415. ISSN 1059-0560

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The issue of economic governance is highly discussed pertaining to the question of industrialisation of a country, but the literature on trade and foreign direct investment (FDI) hardly pays attention to this aspect. We develop a simple model to show how good economic governance in the domestic country, reducing domestic marketing and distribution costs, affects inward FDI and domestic welfare. Whether good governance in the domestic country attracts FDI depends on the way it affects the marketing and distribution costs. The effect of good governance is ambiguous on domestic welfare and depends on the cost difference between the firms, international transportation cost and the extent of cost reduction. Our analysis reveals strategic reasons for poor governance in some situations in the presence of foreign competition.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Economics (FBE) > School of Economics
Depositing User: Ms Shalni Sanjana
Date Deposited: 12 May 2013 23:12
Last Modified: 21 Jun 2016 23:36

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