Abstract:A mass of scholars had studied the roles of government and MNEs in industry development. The general conclusion was that FDI had both positive and negative effects and the government played a crucial role in maximizing the positive effects. Although some scholars were aware of the game relationships between MNEs and government, the important questions that how the government bargained with MNEs to make its optimal choice and what were the bargaining chips have not been investigated adequately. To fill this research gap, this study analyzed the problem through the perspective of game theory based on the Brazilian automobile industry’s case. First, we confirmed the roles of FDI and government in industry development and it was the dynamic game process. Second, we confirmed the roles of import-substitution for establishing and export-promotion policy for upgrading industry in the context of dynamic game. Furthermore, we explored some new policies such as further opening-up, which was always omitted in static analysis. Third, we found that the bargaining power of the government primarily came from the advantages of the local market. And the conclusion we explored may have the policy implication for developing countries especially for those with the huge local market.

Authors:Taotao Chen, Afonso Fleury, Maria Fleury, Shichang Liu, XiaoChen

working paper,2017 AIB Conference.