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Using a simple mixed oligopoly model, this paper examines therelationship between market-openings to foreign capital and privatization of adomestic public firm. Two types of market-openings are considered. Firstis that, given the number of the firms, the restriction on the share of foreigncapital in each corporate joint venture is relaxed. Second is that, given theshare of foreign capital in each corporate joint venture, the restriction onthe number of the firms is relaxed. The analysis shows that the optimal levelof privatization critically depends on the types of market openings to foreigncapital. The optimal level of privatization declines as the share of foreign capitalin each corporate joint venture increases. By contrast, the optimal level ofprivatization rises with an increase in the number of the firms operating inthe market. The two different strategies for market-openings result in the opposite impacts on the welfare-maximizinggovernment’s incentive for privatization.

KEYWORDS

Regulation on Foreign Investment, Partial Privatization, Mixed Oligopoly

Cite this paper

Han, L. and Ogawa, H. 2015 The Relationship between Privatization and Regulation on Foreign Investment Policies. Theoretical Economics Letters, 5, 97-102. doi: 10.4236-tel.2015.51014.





Author: Lihua Han1, Hikaru Ogawa2

Source: http://www.scirp.org/



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