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Multinational corporations and commercialised states: Can state aid serve as the basis for an FDI-driven growth strategy?

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  • Woodgate, Ryan

Abstract

In recent decades, governments around the world have increasingly used various forms of state aid to try to attract and retain the business activity of foreign-owned multinational corporations. Yet, in most cases, this "commercialisation of state sovereignty" (Palan, 2002) has failed to catalyse foreign investment and economic growth as intended. This paper seeks to understand the general failure of such commercialised state strategies, while also explaining how demand and income growth in some notable exceptions can be understood. To this end, a simple demand-led model is presented that suggests that foreign-targeted state aid may lead to beggarthy-neighbour, FDI-driven growth in one economy if certain conditions are met, such as there being sufficiently little policy competition from other countries. It is shown that the exceptional cases tend to be the early movers, i.e. those few economies and special economic zones that engaged in the commercialisation of state sovereignty before the widespread competitive emulation that followed. This paper argues that state aid for the attraction of foreign multinationals is unlikely to be an effective growth strategy in the current environment of intense state competition and that international coordination on corporation tax and other forms of state aid is desirable.

Suggested Citation

  • Woodgate, Ryan, 2021. "Multinational corporations and commercialised states: Can state aid serve as the basis for an FDI-driven growth strategy?," IPE Working Papers 161/2021, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
  • Handle: RePEc:zbw:ipewps:1612021
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    References listed on IDEAS

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    Cited by:

    1. Schedelik, Michael & Nölke, Andreas & May, Christian & Gomes, Alexandre, 2022. "Dependency revisited: Commodities, commodity-related capital flows and growth models in emerging economies," IPE Working Papers 201/2022, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    2. Ryan Woodgate, 2023. "Offshoring via vertical FDI in a long-run Kaleckian Model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 46(1), pages 32-64, January.
    3. Ryan Woodgate, 2023. "FDI-led growth models: Sraffian supermultiplier models of export platforms and tax havens," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 20(3), pages 491-514, December.
    4. Hein, Eckhard, 2022. "Varieties of demand and growth regimes: Post-Keynesian foundations," IPE Working Papers 196/2022, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    5. Benjamin Jungmann, 2023. "Growth drivers in emerging capitalist economies: building blocks for a post-Keynesian analysis and an empirical exploration of the years before and after the Global Financial Crisis," Review of Evolutionary Political Economy, Springer, vol. 4(2), pages 349-386, July.

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    More about this item

    Keywords

    policy competition; foreign direct investment; tax havens; export platforms;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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