Subsidy Competition in Integrating Economies

Facundo Albornoz and Gregory Corcos

Discussion Papers from Department of Economics, University of Birmingham

Abstract: Regional integration affects location decisions of MNCs and therefore influences each member country’s provision of investment incentives, which in turn may trigger relocation. As a consequence, subsidy competition increases as integration proceeds. We analyze the welfare consequences of this phenomenon, modelling subsidization as a game between a MNC facing different location alternatives and governments that may deter or induce relocation by means of subsidies. We show that the combination of integration and subsidy competition may lead to an excess of subsidization. We also discuss how the interest of harmonizing subsidies, the net gains from integration crucially depend on technological differences, ownership and the absorption capacity of MNC profits by countries. Lastly, we find that the gain from supranational subsidy coordination increases with integration.

Keywords: Multinational Corporations; Regional Integration; FDI; Subsidy Competition; Location Choice (search for similar items in EconPapers)
JEL-codes: F15 F21 F23 H2 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2005-10
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repec.cal.bham.ac.uk/pdf/05-14.pdf

Related works:
Working Paper: Subsidy competition in integrating economies (2005)
Working Paper: Subsidy competition in integrating economies (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:05-14

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, University of Birmingham Contact information at EDIRC.
Bibliographic data for series maintained by Oleksandr Talavera ().