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Subsidy Competition for FDI: Fierce or Weak?

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Abstract

The objective of this paper is to empirically assess the recently introduced models of subsidy competition based on the classical oligopoly theories, using both cross-sectional and panel data. Three crucial scenarios (including coordination, weak competition, and fierce competition) are tested employing OLS, iteratively re-weighted least squares, fixed effects, and Blundell-Bond estimator. The results suggest that none of the scenarios can be strongly supported—although there is some weak support for cooperation—, and thus that empirical evidence is not in accordance with the tested models. Further, it seems that by means of FDI incentives countries try to compensate foreign investors for high wages or low productivity of their citizens.

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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2009/07.

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Length: 27 pages
Date of creation: Feb 2009
Date of revision: Feb 2009
Handle: RePEc:fau:wpaper:wp2009_07

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Keywords: Panel data; Investment incentives; Foreign direct investment; Subsidy competition;

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  9. Tomáš Havránek, 2009. "The supply of foreign direct investment incentives: subsidy competition in an oligopolistic framework," Prague Economic Papers, University of Economics, Prague, vol. 2009(2), pages 131-155.
  10. Tomáš Havránek & Zuzana Iršová, 2008. "Intra-Industry Spillovers from Inward FDI: A Meta-Regression Analysis," Working Papers IES 2008/08, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2008.
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