International Competition for Multinational Investment

Jan I. Haaland and Ian Wooton ()

No 1937, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine the economic justification for providing investment subsidies to foreign-owned multinationals. These provide employment opportunities and generate demand for domestic intermediate inputs, produced by domestic workers with increasing returns to scale. Offering subsidies to multinationals may be in the national interest if the investment raises the net value of domestic production. When agglomerative forces are sufficiently strong, a subsidy that attracts the first foreign firm may induce several to enter, establishing a thriving modern sector. With a limited number of foreign enterprises, countries may compete to attract investment. This subsidy competition transfers much of the rents to the multinationals.

Keywords: Foreign Direct Investment; Location; Multinationals; policy competition (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 1998-07
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: International Competition for Multinational Investment (1999)
Working Paper: International Competition for Multinational Investment (1998)
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