Incentives to Create Jobs:� Regional Subsidies, National Trade Policy and Foreign Direct Investment
AbstractA national authority wishes to attract foreign direct investment (FDI) to create local jobs.� We analyse the optimal national trade policy faced with the possibility that local authorities might offer subsidies to convince a multi-national enterprise (MNE) to invest in their jurisdiction.� With centralised decision-making or with allocation of investment to particular localities, the central authority�s optimal policy is to use a high tariff to avoid payment of any subsidy to the MNE.� Despite this, some socially undesirable (but locally desirable) FDI cannot be avoided.� If local authorities compete to offer subsidies to attract local investment, then the central government�s optimal policy is to try to discourage FDI by choosing a low tariff.� Again, despite this some socially undesirable � and even locally undesirable -- FDI prevails.� We conduct our analysis both assuming an upper bound on tariffs, as would be consistent with trade liberalisation, and allowing tariffs to vary freely. The effect of this trade liberalisation depends heavily on the system of granting local subsidies: if the system is rather centralised, trade liberalisation decreases the range of parameters for which FDI occurs; if the system is decentralised and competitive, it increases this range.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 710.
Date of creation: 01 Mar 2012
Date of revision:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-02 (All new papers)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Essex Economics Web Manager).
If references are entirely missing, you can add them using this form.