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When Do State-Owned Firms Crowd Out Private Investment?

Type of publication Peer-reviewed
Publikationsform Original article (peer-reviewed)
Publication date 2014
Author Buehler Stefan, Wey Simon,
Project Industrial Organization, Regulation, and the Foundations of Competition Policy
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Original article (peer-reviewed)

Journal Journal of Industry, Competition and Trade
Volume (Issue) 14
Page(s) 319 - 330
Title of proceedings Journal of Industry, Competition and Trade
DOI DOI 10.1007/s10842-013-0164-y

Abstract

This paper examines the conditions under which a state-owned firm with a political agenda strategically crowds out investment by a private firm. Employing reduced-form analysis, we show that strategic crowding out occurs if (i) the private firm regards investments as strategic substitutes, and (ii) private investment is undesirable from the state-owned firm’s perspective. We discuss how our analysis applies to real-world markets and argue that it provides an explanation for the ambivalent evidence on the effect of public on private investment: State ownership is neither necessary nor sufficient for crowding out to occur.
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