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B. Karabay, G. Pulverer, E. Weinmüller:
"Foreign ownership restrictions: a numerical approach";
in: "ASC Report 06/2008", issued by: Institute for Analysis and Scientific Computing; Vienna University of Technology, Wien, 2008, ISBN: 978-3-902627-01-8.

In this paper, we analyze the reason behind the use of foreign ownership restrictions on inward Foreign
Direct Investment (FDI). We extend the results developed in [38] by changing the condition on share
distribution in the model. Due to this change, we are able to analyze the political economy aspect of this
restrictive policy, i.e., we can study the effect of the host government´s welfare preference on the optimal
foreign ownership restriction. Since the analytical solution to the optimal share restriction policy cannot
be specified in general, we use a numerical approach based on collocation to approximate the solution
to the problem. Within this framework, under certain conditions, it turns out that the rent extraction-
efficiency trade-off is sharper the less the host government favors the local firm. We show that not only
economic factors but also political factors play an important role in the determination of the foreign
ownership restrictions.

Ownership, Multinationals, Asymmetric Information, Regulation, Singular Boundary Value

http://www.asc.tuwien.ac.at/preprint/2008/asc06x2008.pdf