In this paper it is argued that the restructuring following the stiffer competition stemming from increased global integration will trigger a race between countries to attract inward foreign direct investment (FDI). It is further argued that this race consists of last minute efforts and tailor-made packages designed by governments and their agencies to temporarily improve their country’s otherwise inferior profile. This race is non-transparent and the factors used to compete for inward FDI (the 'elements' of the race) deviate from those of long-term efforts to develop a favourable investment climate and improve productivity, as well as medium-term efforts, such as lowering corporate taxes. The paper elaborates on the research problem of properly understanding the drivers of inward FDI in the absence of data on the elements of the non-transparent race. It also addresses the economic policy problem following from this race with a scenario where a large share of global FDI ends up in China, putting the cohesion of the EU at stake and triggering a regional race within China.
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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number
745.
Length: 40 pages Date of creation: 15 Apr 2008 Date of revision: Handle: RePEc:hhs:iuiwop:0745
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Find related papers by JEL classification: E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination F15 - International Economics - - Trade - - - Economic Integration F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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