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Regional centrality and tax competition for FDI

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  • Darby, Julia
  • Ferrett, Ben
  • Wooton, Ian

Abstract

We examine a trade model where three countries compete for an exogenous number of firms. In our hub-and-spoke framework, one country is the hub through which all trade with and between spokes takes place. We establish the distribution of industrial activity in the absence of taxes and compare it to the equilibrium when countries compete to attract firms. Even when all countries have the same size, the centrality of the hub sets it apart. We determine how this trading pattern matters, comparing it to a structure with direct trade between all countries. The implications of international tax competition are also examined.

Suggested Citation

  • Darby, Julia & Ferrett, Ben & Wooton, Ian, 2014. "Regional centrality and tax competition for FDI," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 84-92.
  • Handle: RePEc:eee:regeco:v:49:y:2014:i:c:p:84-92
    DOI: 10.1016/j.regsciurbeco.2014.08.006
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    References listed on IDEAS

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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Fumagalli, Chiara, 2003. "On the welfare effects of competition for foreign direct investments," European Economic Review, Elsevier, vol. 47(6), pages 963-983, December.
    3. Becker, Johannes & Fuest, Clemens, 2010. "EU regional policy and tax competition," European Economic Review, Elsevier, vol. 54(1), pages 150-161, January.
    4. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Policy competition for foreign direct investment between asymmetric countries," European Economic Review, Elsevier, vol. 50(7), pages 1891-1907, October.
    5. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
    6. Olsen, Trond E. & Osmundsen, Petter, 2003. "Spillovers and international competition for investments," Journal of International Economics, Elsevier, vol. 59(1), pages 211-238, January.
    7. Julia Darby & Ben Ferrett & Ian Wooton, 2013. "FDI, Trade Costs and Regional Asymmetries," CESifo Working Paper Series 4469, CESifo Group Munich.
    8. Ben Ferrett & Ian Wooton, 2010. "Competing for a duopoly: international trade and tax competition," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 776-794, August.
    9. Haaparanta, Pertti, 1996. "Competition for foreign direct investments," Journal of Public Economics, Elsevier, vol. 63(1), pages 141-153, December.
    10. Haufler, Andreas & Wooton, Ian, 2010. "Competition for firms in an oligopolistic industry: The impact of economic integration," Journal of International Economics, Elsevier, vol. 80(2), pages 239-248, March.
    11. Julia Darby & Ben Ferrett & Ian Wooton, 2013. "FDI, trade costs and regional asymmetries," Working Papers 1327, University of Strathclyde Business School, Department of Economics.
    12. Haufler, Andreas & Wooton, Ian, 2006. "The effects of regional tax and subsidy coordination on foreign direct investment," European Economic Review, Elsevier, vol. 50(2), pages 285-305, February.
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    Cited by:

    1. Pang, Yu, 2019. "Taxing pollution and profits: A bargaining approach," Energy Economics, Elsevier, vol. 78(C), pages 278-288.

    More about this item

    Keywords

    Corporate taxes; Devolution; Trade costs; Hub and spoke;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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