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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.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 4 (2003)
Issue (Month): 1 (May)
Pages: 151-176

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Handle: RePEc:cuf:journl:y:2003:v:4:i:1:p:151-176

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Related research

Keywords: Foreign direct investment (FDI); Multinational corporation (MNC); Comparative advantage; Absolute advantage; Market opportunity; FDI incentives;

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References

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  1. Hummels, D.L. & Stern, R.M., 1992. "Evolving Patterns of North American Merchandise Trade and Foreign Direct Investment, 1960-1990," Working Papers, Research Seminar in International Economics, University of Michigan 318, Research Seminar in International Economics, University of Michigan.
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Cited by:
  1. Mi Lin & Yum K. Kwan, 2011. "Sectoral Location of FDI in China," The World Economy, Wiley Blackwell, vol. 34, pages 1181-1198, 07.
  2. 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.

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