The Economics of Foreign Direct Investment Incentives

Blomström, Magnus and Ari Kokko

No 3775, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper suggests that the use of investment incentives focusing exclusively on foreign firms - although motivated in some cases from a theoretical point of view - is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI ? spillovers of foreign technology and skills to local industry ? is not an automatic consequence of foreign investment. The potential spillover benefits are realized only if local firms have the ability and motivation to invest in absorbing foreign technologies and skills. To motivate subsidization of foreign investment, it is therefore necessary, at the same time, to support learning and investment in local firms as well.

Keywords: Foreign direct investment; Investment incentives (search for similar items in EconPapers)
JEL-codes: J23 O12 (search for similar items in EconPapers)
Date: 2003-02
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Citations: View citations in EconPapers (273)

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Related works:
Working Paper: The Economics of Foreign Direct Investment Incentives (2003)
Working Paper: The Economics of Foreign Direct Investment Incentives (2003)
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