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The Economics of Foreign Direct Investment Incentives

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Author Info
Blomström, Magnus () (European Institute of Japanese Studies)
Kokko, Ari () (European Institute of Japanese Studies)

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Abstract

This paper suggests that the use of investment incentives focusing exclusively on foreign firms, although motivated in some cases from a theoretical point of view, is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI – spillovers of foreign technology and skills to local industry – is not an automatic consequence of foreign investment. The potential spillover benefits are realized only if local firms have the ability and motivation to invest in absorbing foreign technologies and skills. To motivate subsidization of foreign investment, it is therefore necessary, at the same time, to support learning and investment in local firms as well.

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Publisher Info
Paper provided by The European Institute of Japanese Studies in its series EIJS Working Paper Series with number 168.

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Length: 25 pages
Date of creation: 01 Jan 2003
Date of revision:
Publication status: Published in Foreign Direct Investment in the Real and Financial Sector of Industrial Countries, Herrmann, H. , Lipsey, R.E. (eds.), 2003, pages 37-56, Springer Verlag, Hamburg.
Handle: RePEc:hhs:eijswp:0168

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Related research
Keywords: FDI; Incentives; Industrial policy;

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Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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References listed on IDEAS
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.:
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    Other versions:
  3. Magnus Blomstrom & Ari Kokko & Mario Zejan, 1995. "Host Country Competition and Technology Transfer by Multinationals," NBER Working Papers 4131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
  8. Kokko, Ari, 2002. "Export-Led Growth in East Asia: Lessons for Europe's Transition Economies," EIJS Working Paper Series 142, The European Institute of Japanese Studies.
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    Other versions:
  22. Vinish Kathuria, 2000. "Productivity spillovers from technology transfer to Indian manufacturing firms," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 343-369.
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  38. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October. [Downloadable!] (restricted)
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