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International Competition for Multinational Investment

Author

Listed:
  • Haaland, J.I.
  • Wooton, I.

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, J.I. & Wooton, I., 1998. "International Competition for Multinational Investment," Papers 14/98, Norwegian School of Economics and Business Administration-.
    • Handle: RePEc:fth:norgee:14/98
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    Keywords

    INVESTMENTS ; INDUSTRIAL LOCATION ; TRANSNATIONAL CORPORATIONS;
    All these keywords.

    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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