Abstract

The author makes use of the modern economic theories and methods to construct a theoretical framework for game analysis that centers on the creation and distribution of return on transnational corporations’ investment; thereby interprets the formulation and implementation of host country’s foreign investment policy and reinforces the existing theories and, on the other hand, analyzes the investment behavior of the transnational investors and the measures taken by the host country to attract foreign investment as well as the interaction between transnational investors and host countries; and thus creates a solid international investment theory. The author analyzed the static and dynamic games with complete information between transnational corporations and host country and found the optimal solutions under the highly abstract assumptions. He also found that, when other conditions remain unchanged, the optimal level of host country’s foreign investment preferential policy is in direct proportion to its needs of foreign investment or the scale of capital gap, and is in inverse ratio to the level of its investment environment.