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International Competition for Multinational Investment

Author

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  • Haaland, Jan I.
  • Wooton, Ian

Abstract

We examine the economic justification for providing investment subsidies to foreign-owned multinationals. These provide employment opportunities and generate demand for domestic intermediate inputs, produced by domestic workers with increasing returns to scale. Offering subsidies to multinationals may be in the national interest if the investment raises the net value of domestic production. When agglomerative forces are sufficiently strong, a subsidy that attracts the first foreign firm may induce several to enter, establishing a thriving modern sector. With a limited number of foreign enterprises, countries may compete to attract investment. This subsidy competition transfers much of the rents to the multinationals.

Suggested Citation

  • Haaland, Jan I. & Wooton, Ian, 1998. "International Competition for Multinational Investment," CEPR Discussion Papers 1937, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1937
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    Citations

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    Cited by:

    1. Klaus Desmet & Felipe Meza & Juan A. Rojas, 2008. "Foreign direct investment and spillovers: gradualism may be better," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 926-953, August.
    2. Facundo Albornoz & Gregory Corcos & Toby Kendall, 2007. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers 05-15, Department of Economics, University of Birmingham.
    3. Chor, Davin, 2009. "Subsidies for FDI: Implications from a model with heterogeneous firms," Journal of International Economics, Elsevier, vol. 78(1), pages 113-125, June.
    4. Gaël Lagadec, 2004. "La stratégie des firmes multinationales face aux États : le cas de l’exploitation du nickel calédonien," Mondes en développement, De Boeck Université, vol. 125(1), pages 85-103.
    5. Oscar Amerighi & Giuseppe Feo, 2017. "Tax competition for foreign direct investments and the nature of the incumbent firm," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(4), pages 811-826, August.
    6. Müller, Thomas, 2003. "The Multinational Enterprise," Munich Dissertations in Economics 799, University of Munich, Department of Economics.
    7. Facundo Albornoz, Gregory Corcos and Toby Kendall, 2005. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers 05-15, Department of Economics, University of Birmingham.
    8. Collie, D. & Vandenbussche, H., 1999. "Trade, FDI, and unions," Discussion Paper 1999-42, Tilburg University, Center for Economic Research.
    9. Nunnenkamp, Peter & Pant, Manoj, 2003. "Why the case for a multilateral agreement on investment is weak," Kiel Discussion Papers 400, Kiel Institute for the World Economy (IfW).
    10. Facundo Albornoz and Gregory Corcos, 2005. "Subsidy Competition in Integrating Economies," Discussion Papers 05-14, Department of Economics, University of Birmingham.
    11. Facundo Albornoz & Grégory Corcos, 2005. "Subsidy competition in integrating economies," Working Papers halshs-00590785, HAL.
    12. Christian Bellak, 2004. "The Impact of Enlargement on the Race for FDI," Department of Economics Working Papers wuwp086, Vienna University of Economics and Business, Department of Economics.
    13. Jun Oshiro, 2011. "Tariff Policy and Transport Costs under Reciprocal Dumping," Discussion Papers in Economics and Business 11-17, Osaka University, Graduate School of Economics.

    More about this item

    Keywords

    Foreign Direct Investment; Location; Multinationals; policy competition;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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