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The Economics of Foreign Direct Investment Incentives

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Author Info
Magnus Blomstrom
Ari Kokko

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9489.

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Date of creation: Feb 2003
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Handle: RePEc:nbr:nberwo:9489

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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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  7. 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:
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Full references

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. Magnoli Bocchi, Alessandro, 2008. "Rising growth, declining investment : the puzzle of the Philippines breaking the " low-capital-stock " equilibrium," Policy Research Working Paper Series 4472, The World Bank. [Downloadable!]
  2. Aleksynska, Mariya & Gaisford, James & Kerr, William, 2003. "Foreign Direct Investment and Growth in Transition Economies," MPRA Paper 7668, University Library of Munich, Germany, revised Dec 2003. [Downloadable!]
  3. Sourafel Girma, 2005. "Safeguarding Jobs? Acquisition FDI and Employment Dynamics in U.K. Manufacturing," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(1), pages 165-178, April. [Downloadable!] (restricted)
  4. Kokko, Ari & Kravtsova, Victoria, 2006. "Innovative Capability In Mnc Subsidiaries: Evidence From Four European Transition Economies," EIJS Working Paper Series 224, The European Institute of Japanese Studies.
  5. Kolasa, Marcin, 2007. "How does FDI inflow affect productivity of domestic firms? The role of horizontal and vertical spillovers, absorptive capacity and competition," MPRA Paper 8673, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Katrin Männik & Helena Hannula & Urmas Varblane, 2004. "Country, Industry And Firm Size Effects On Foreign Subsidiary Strategy.An Example Of Five Cee Countries," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 27, Faculty of Economics and Business Administration, University of Tartu (Estonia). [Downloadable!]
  7. Célio Hiratuka & Rogério Dias de Araújo, 2006. "Exportações Das Firmas Domésticas E Influência Das Firmas Transnacionais," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 128, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  8. Ralph Paprzycki, 2007. "The Determinants of and Prospects for Foreign Direct Investment in Japan," Hi-Stat Discussion Paper Series d07-211, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  9. Sergio Salis, 2006. "Evaluating the Causal Effect of Foreign Acquisition on Domestic Performances: The Case of Slovenian Manufacturing Firms," William Davidson Institute Working Papers Series wp803, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  10. Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2007. "To React or Not? Fiscal Policy, Volatility and Welfare in the EU-3," Working Papers 2007_02, Department of Economics, University of Glasgow. [Downloadable!]
    Other versions:
  11. Rashmi Banga, 2003. "Impact of government policies and investment agreements on FDI inflows," Indian Council for Research on International Economic Relations, New Delhi Working Papers 116, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  12. Linda Goldberg, 2004. "Financial-sector foreign direct investment and host countries: new and old lessons," Staff Reports 183, Federal Reserve Bank of New York. [Downloadable!]
  13. Q Li & S Girma, . "Exporting, FDI, and Labour Demand Adjustment: Evidence from the UK Manufacturing," Working Papers 2006_18, Department of Economics, University of Glasgow. [Downloadable!]
  14. Petr Kral, 2004. "Identification and Measurement of Relationships Concerning Inflow of FDI: The Case of the Czech Republic," Working Papers 2004/05, Czech National Bank, Research Department. [Downloadable!]
  15. Heather D. Gibson & Nicholas T. Tsaveas & Thomas Vlassopoulos, 2006. "Capital Flows, Capital Account Liberalisation and the Mediterranean Countries," Working Papers 33, Bank of Greece. [Downloadable!]
  16. Laura Alfaro & Andrew Charlton, 2007. "Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?," CEP Discussion Papers dp0830, Centre for Economic Performance, LSE. [Downloadable!]
  17. Linda Goldberg, 2004. "Financial-Sector FDI and Host Countries: New and Old Lessons," NBER Working Papers 10441, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  18. Lutz, Stefan & Talavera, Oleksandr & Park, Sang-Min, 2003. "The Effects of Regional and Industry : Wide FDI Spillovers on Export of Ukrainian Firms," ZEW Discussion Papers 03-54, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  19. Aldaba, Rafaelita Mercado, 2006. "FDI Investment Incentive System and FDI Inflows: The Philippine Experience," Discussion Papers DP 2006-20, Philippine Institute for Development Studies. [Downloadable!]
  20. Andrew Charlton & Nicholas Davis, 2007. "Does Investment Promotion Work?," Contributions to Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1), pages 1743-1743. [Downloadable!] (restricted)
  21. Anna Iara, 2005. "Regional growth in Hungary - The impact of European economic integration," ERSA conference papers ersa05p342, European Regional Science Association. [Downloadable!]
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