For Whom is MAI? A theoretical Perspective on Multilateral Agreements on Investments

For Whom is MAI? A Theoretical Perspective
on Multilateral Agreements on Investment

Alessandro Turrini*and Dieter Urbany

December 2000

Abstract

Why do we observe some LDCs objecting the prospect of a Multilat-
eral Agreement on Investment (MAI), although they have been keen to
liberalize investment in preferential agreements in recent years? In this
paper, we analyse the issue of MAI implementation and assess the welfare
consequences of such kind of agreements. In our model, participation to
MAI involves a trade-off between less rent extraction from multinational
firms (MNEs) and more abundant FDI inflows. At equilibrium, either all
countries enter MAI, or all countries stay out, or only some of them enter.
Coordination problems may induce multiple equilibria: the three types
of equilibria may coexist. So, the implementation of MAI may depend
not only on structural factors but also on the general ”political climate”.
When all countries join MAI, world welfare is maximized because this
minimizes the hold-up problem faced by MNEs and stimulates invest-
ment. However, in an asymmetric world, welfare gains are not guaranteed
for all countries.

JEL Reference: F13, F23., O19.

Keywords: Foreign Direct Investment, International Agreements, In-
complete Contracts, Adverse selection, Multiple Equilibria.

‘University of Bergamo and CEPR. Department of Economics, University of Bergamo,
P.zza Rosate 2, 24100 Bergamo, Italy. Ph: +39-35-277506; Fax: +39-35-249975. E-mail:
[email protected].

y Centro Studi Luca D’ Agliano, Milan, and HWWA, Hamburg. LdA, Bocconi Univer-
sity, Via Sarfatti 25, 20136 Milano. Tel. +39-02-58365347; Fax. +39-02-58363399. E-mail:
[email protected].

<<   1   2   3   4   5   >>

More intriguing information