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Comparing Sectoral FDI Incentives: Comparative Advantages and Market Opportunities

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  • Larry D. Qiu

    (Department of Economics, Hong Kong University of Science & Technology)

Abstract

In this paper we closely examine the implications of comparative advantage for foreign direct investment (FDI) incentives. Particularly, we find that the host country¡¯s comparative advantage sector is more attractive to inward FDI than its comparative disadvantage sector. This finding is supported by empirical evidence. However, such a cross-sector FDI comparison has not been studied, theoretically and explicitly, in the literature. This paper contributes to the literature by filling this gap. We have also obtained some other results such as how the degrees of comparative advantage and absolute advantage affect FDI incentives, and whether a multinational corporation (MNC) should allow its foreign subsidiary to be run independently.

Suggested Citation

  • Larry D. Qiu, 2003. "Comparing Sectoral FDI Incentives: Comparative Advantages and Market Opportunities," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 151-176, May.
    • Handle: RePEc:cuf:journl:y:2003:v:4:i:1:p:151-176
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    Cited by:

    1. John C. Anyanwu, 2012. "Why Does Foreign Direct Investment Go Where It Goes?: New Evidence From African Countries," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 425-462, November.
    2. Mi Lin & Yum K. Kwan, 2011. "Sectoral Location of FDI in China," The World Economy, Wiley Blackwell, vol. 34, pages 1181-1198, July.
    3. Evgenia Tonkova & Sevdalina Hristova & Dancho Petrov, 2020. "Comparative Advantages in Attracting Investments - Contemporary View," Izvestia Journal of the Union of Scientists - Varna. Economic Sciences Series, Union of Scientists - Varna, Economic Sciences Section, vol. 9(3), pages 12-18, December.
    4. Liu, Kelly & Daly, Kevin & Varua, Maria Estela, 2014. "Analysing China's foreign direct investment in manufacturing from a high–low technology perspective," Emerging Markets Review, Elsevier, vol. 21(C), pages 82-95.
    5. Poonam Mehra Singh, 2017. "Competition or Comparative Advantage: What Drives Cross Border Mergers and Acquisitions?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 461-488, September.

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    More about this item

    Keywords

    Foreign direct investment (FDI); Multinational corporation (MNC); Comparative advantage; Absolute advantage; Market opportunity; FDI incentives;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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