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Multinationals and Industrial Policy

  • Giorgio Barba Navaretti

    ()

    (University of Milan and Centro Studi Luca d’Agliano)

  • Anthony J. Venables

    ()

    (University of Oxford and CEPR)

Are there benefits to the host country from multinational investments? Does potential value from these investments make active industrial policy worthwhile? We answer the first question affirmatively, having reviewed economic principles and evidence concerning the effects of projects locating in (or not being off-shored from) a country. On the second, policy can have a limited effect in influencing location decisions, but it is doubtful that it is cost effective. Implementation faces lack of information, risk of capture and, in many cases, non-rigorous processes. Competition between jurisdictions means that much policy is investment diversion not investment creation. There is a case for supra-national controls (as with EU State Aid regulations), for policy to be used only for well-defined market failures, and for better implementation and more rigorous ex-ante appraisal and ex-post evaluation.

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Paper provided by Centro Studi Luca d'Agliano, University of Milano in its series Development Working Papers with number 352.

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Length: 24
Date of creation: 24 Apr 2013
Date of revision: 24 Apr 2013
Handle: RePEc:csl:devewp:352
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