 Attracting multinationals: Additional hurdles under firm selectionEconomics Letters, 2021, vol. 208, issue C Abstract: We consider a country comprising monopolistic exporters, and a government seeking to boost their efficiency. With this goal, the government provides a multinational with incentives to relocate production in the country, which benefits exporters through productivity spillovers. Our setting highlights the additional difficulties to attract multinationals when the most efficient exporters benefit relatively more from spillovers. Specifically, this makes the policy more effective in enhancing aggregate productivity, by reallocating market share towards more productive firms. However, it simultaneously makes attracting multinationals harder, due to more pronounced increases in competition in the exporting market. Intuitively, the result underscores that multinationals could strategically avoid relocating production in a country if this potentially creates a pool of highly efficient competitors. Thus, those countries that have a subset of firms with outstanding capabilities and hence could potentially benefit more from this policy, are also the ones that could face additional hurdles to implement it. Keywords: Multinationals; Foreign direct investment; FDI; Productivity spillovers; Firm heterogeneity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:208:y:2021:i:c:s0165176521003645 DOI: 10.1016/j.econlet.2021.110087 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
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