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Multinational Firms: Easy Come, Easy Go?

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Author Info
Haaland, Jan I.
Wooton, Ian

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Abstract

Although many countries welcome inward investments by multinational firms (MNEs), it is often perceived that MNEs readily close down production in bad times. We study the choice of an MNE in deciding whether to establish a branch plant within a region, explicitly taking into account exit, as well as entry, costs. Protecting workers by having strict lay-off rules deters potential investment while subsidies attract it. We examine the policy trade-off for a host government and investigate how uncertainty affects the attractiveness of investment in a particular location. Just how much does the ease of exit influence the entry decision?

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2660.

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Date of creation: Jan 2001
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Handle: RePEc:cpr:ceprdp:2660

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Related research
Keywords: Entry; Exit; Multinational Firms; Subsidies; Uncertainty;

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Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

References listed on IDEAS
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  1. Schnitzer, Monika, 1999. "Expropriation and control rights: A dynamic model of foreign direct investment," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1113-1137, November. [Downloadable!] (restricted)
    Other versions:
  2. Haaland, Jan I & Wooton, Ian, 1999. " International Competition for Multinational Investment," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(4), pages 631-49, December. [Downloadable!] (restricted)
    Other versions:
  3. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February. [Downloadable!] (restricted)
    Other versions:
  4. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January. [Downloadable!] (restricted)
    Other versions:
  5. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Blackwell Publishing, vol. 57(3), pages 381-402, July. [Downloadable!] (restricted)
  6. Kind, H.J. & Knarvik, K.H.M. & Schjelderup, G., 1999. "Competing for Capital in a "Lumpy" World," Papers 7/99, Norwegian School of Economics and Business Administration-.
    Other versions:
  7. Devereux, Michael P. & Griffith, Rachel, 1998. "Taxes and the location of production: evidence from a panel of US multinationals," Journal of Public Economics, Elsevier, vol. 68(3), pages 335-367, June. [Downloadable!] (restricted)
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  8. Ram Mudambi, 1999. "Multinational Investment Attraction: Principal-Agent Considerations," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 6(1), pages 65-79, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. K Behrens & P M Picard, 2005. "Welfare, home market effects, and horizontal foreign direct investment," The School of Economics Discussion Paper Series 0519, Economics, The University of Manchester. [Downloadable!]
    Other versions:
  2. Kotov, Denis, 2008. "How Changing Investment Climate Impacts on the Foreign Investors Investment Decision: Evidence from FDI in Germany," MPRA Paper 8777, University Library of Munich, Germany. [Downloadable!]
  3. Beata Smarzynska Javorcik & Mariana Spatareanu, 2005. "Do Foreign Investors Care about Labor Market Regulations?," Working Papers Rutgers University, Newark 2005-005, Department of Economics, Rutgers University, Newark. [Downloadable!]
    Other versions:
  4. Dewit, G. & Holger, G. & Montagna, C., 2003. "Should I stay or should I go? A note on employment protection, domestic anchorage, and FDI," Economics, Finance and Accounting Department Working Paper Series n1291003, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
    Other versions:
  5. Giovanni Immordino, 2003. "Fairness, NGO Activism and the Welfare of Less Developed Countries," CSEF Working Papers 101, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  6. Markus Leibrecht & Johann Scharler, 2007. "How Important is Employment Protection Legislation for Foreign Direct Investment Flows in Central and Eastern European Countries?," Economics working papers 2007-16, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
    Other versions:
  7. Haaland, Jan I. & Wooton, Ian, 2003. "Domestic Labour Markets and Foreign Direct Investment," CEPR Discussion Papers 3989, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Martin Robson & Roxana Radulescu, 2004. "Does stricter employment protection legislation deter FDI?," Money Macro and Finance (MMF) Research Group Conference 2003 81, Money Macro and Finance Research Group. [Downloadable!]
  9. Haaland, Jan I. & Wooton, Ian, 2002. "Multinational Investment, Industry Risk and Policy Competition," CEPR Discussion Papers 3152, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Isabel Faeth, 2005. "Determinants of FDI in Australia: Which Theory Can Explain it Best?," Department of Economics - Working Papers Series 946, The University of Melbourne. [Downloadable!]
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