Temporary investment incentives and divestment by foreign firms

José Mata and Paulo Guimaraes

Oxford Economic Papers, 2019, vol. 71, issue 1, 166-186

Abstract: Many countries provide temporary incentives to attract foreign investment, in the belief that these temporary benefits may entice firms to remain in the country. We study the exit decision by multinationals, which were established in Puerto Rico under a temporary incentive program. Under this program, benefits were reduced every 5 years. Our results indicate that whenever benefits are reduced, the probability of firm exit increases. This effect is more pronounced for firms using less skill-intensive technologies, for those investing in areas that do not develop agglomerations, and for firms coming from regions that are well acquainted with Puerto Rico. Our evidence shows that US and Spanish firms are more sensitive to the reduction of benefits than firms from other countries. In addition, US firms coming from states where Puerto Rican communities are large are particularly sensitive to the reduction of benefits.

JEL-codes: F23 L53 M16 O25 R11 R58 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/oep/gpy027 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
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:oup:oxecpp:v:71:y:2019:i:1:p:166-186.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Oxford Economic Papers is currently edited by James Forder and Francis J. Teal

More articles in Oxford Economic Papers from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().