The influence on developing countries’ foreign direct investment (FDI) policies imposed by incentives: A game analysis

Abstract

When governments initiate incentive policies, they are concerned for the transnational corporations’ foreign direct investment (FDI). All governments intend to attract FDI by incentive policies. On the other hand, transnational corporations determine their FDI based on the incentive policies implemented by the developing countries. Therefore, incentive policies affect FDI more than anything else. However, few researchers have studied the game between the interest groups within the host country, that is, the competition between various regions regarding how to attract FDI by incentive policies. Therefore, this study attempts to analyze the game between incentive policies and FDI by game theory and compare the contributions made by incentives. Secondly, this study intends to identify the negative effects of prisoner’s dilemma caused by incentives. Finally, this study discusses the arrangements made by host countries regarding FDI and countermeasures and thereby presents options regarding the incentives to be adopted by governments. Key words: Transnational corporations, foreign direct investment (FDI), incentive policy, game theory.