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International Competition for Foreign Multinational Investment

Author

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  • Jan I. Haaland
  • Ian Wooton

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

  • Jan I. Haaland & Ian Wooton, 1998. "International Competition for Foreign Multinational Investment," Working Papers 9812, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:9812
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    File URL: http://www.gla.ac.uk/media/media_219051_en.pdf
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    References listed on IDEAS

    as
    1. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-277, July.
    2. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    3. Haufler, Andreas & Wooton, Ian, 1997. "Tax competition for foreign direct investment," Discussion Papers, Series II 329, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    4. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-1786, November.
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    Cited by:

    1. 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.

    More about this item

    Keywords

    multinationals; foreign direct investment; location;

    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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