A Signalling Model of Firms' Foreign Direct Investment Relocation Decision

Rosa Forte and Antonio Brandao

International Journal of the Economics of Business, 2008, vol. 15, issue 3, 339-357

Abstract: We analyse whether the foreign government can influence the multinational firm's relocation decision, through signalling the amount of subsidy it can grant. The foreign country is one of two possible types which differ on their investment conditions. Comparing the results obtained with an adverse selection model (the government knows the country type but the firm does not) with the results of a signalling model, we conclude that relocation is more likely, and the necessary subsidy is smaller, in the signalling model than with adverse selection. This can explain the proliferation of Investment Support Agencies worldwide.

Keywords: Multinational Firms; Relocation of Production; Signalling Model (search for similar items in EconPapers)
Date: 2008
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Working Paper: A Signalling Model of Firms' Foreign Direct Investment Relocation Decision (2006)
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DOI: 10.1080/13571510802465112

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