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Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses

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  • Andrew Charlton
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    Abstract

    Competition among governments to attract foreign direct investment (FDI) has grown significantly. This paper investigates the extent to which the size of incentive packages offered to investors by governments is driven by competitive pressure to attract mobile investment projects. It finds that such competition is in many cases a significant determinant of the size and nature of investment incentives. Competition can have both positive and negative effects on domestic and international welfare. Negative outcomes typically occur when governments offer attraction packages that are larger than the value of the benefits to the host economy, or when governments resort to inefficient incentive instruments. Increased transparency would significantly reduce the scope for negative welfare outcomes. Proper accounting for incentives helps to ensure that expenditure is aligned with policy goals, reduces the potential for corruption and improves the efficiency of the negotiation process ... La concurrence que se font les pouvoirs publics pour attirer les investissements directs étrangers (IDE) s’est nettement intensifiée. Ce Document évalue dans quelle mesure l’ampleur des faveurs accordées aux investisseurs par les pouvoirs publics dépend des pressions concurrentielles exercées pour attirer des projets d’investissement mobiles. Il en ressort que, dans bien des cas, cette concurrence détermine largement la nature et l’étendue des avantages consentis. La concurrence peut avoir des effets à la fois positifs et négatifs sur le bien-être au niveau national et international. Les effets négatifs se manifestent lorsque les pouvoirs publics concèdent à l’investisseur des avantages supérieurs aux bénéfices reçus par l’économie hôte, ou lorsqu’ils ont recours à des incitations inefficientes. Ces résultats négatifs sur le bien-être seraient grandement réduits par des mesures visant à améliorer la transparence. Une comptabilité adéquate des incitations contribuerait à garantir ...

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    File URL: http://dx.doi.org/10.1787/864178271805
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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 203.

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    Date of creation: Jan 2003
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    Handle: RePEc:oec:devaaa:203-en

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    Cited by:
    1. Havranek, Tomas, 2008. "The Supply of Foreign Direct Investment Incentives: Subsidy Competition in an Oligopolistic Framework," MPRA Paper 10770, University Library of Munich, Germany.
    2. Hemmer, Hans-Rimbert & Krüger, Ralf & Seith, Jennifer, 2006. "Ausländische Direktinvestitionen: Flankierende Maßnahmen des Staates," Discussion Papers in Development Economics 36, Justus Liebig University Giessen, Institute for Development Economics.
    3. Facundo Albornoz, 2007. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers, Department of Economics, University of Birmingham 05-15R, Department of Economics, University of Birmingham.
    4. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, Elsevier, vol. 50(7), pages 1891-1907, October.
    5. Kristian Behrens & Pierre M. Picard, 2006. "Tax competition, location, and horizontal foreign direct investment," Working Papers, University of Kentucky, Institute for Federalism and Intergovernmental Relations 2006-08, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    6. Gaigné, Carl & Wooton, Ian, 2011. "The gains from preferential tax regimes reconsidered," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 41(1), pages 59-66, January.
    7. Harding, Torfinn & Smarzynska Javorcik, Beata, 2007. "Developing Economies and International Investors: Do Investment Promotion Agencies Bring Them Together?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6418, C.E.P.R. Discussion Papers.
    8. Dalila NICET- CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GREThA, Groupe de Recherche en Economie Théorique et Appliquée 2008-22, Groupe de Recherche en Economie Théorique et Appliquée.
    9. Albornoz, Facundo & Corcos, Gregory & Kendall, Toby, 2009. "Subsidy competition and the mode of FDI," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 39(4), pages 489-501, July.

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