"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.
"It is to be commended for the clarity and care with which the quite comlex game-theoretic models and statistical estimation tehcniques used are explained. Overall, the book is a valuable contribution to the literature on its subject, and a fine example of how much can be squeezed out of parsimonious assumptions."
-"Journal of Developing Areas, 4/93
"Thomas Andersson's new book makes important advances in both the theory and policy analysis of multinationals by endogenizing the foreign investment decision, and then by exploiting simple game theory techniques. His work correctly emphasizes that welfare effects depend crucially on the structure of the game which determines whether or not investment actually occurs."
-James R. Markusen, University of Colorado at Boulder