The Economics of Foreign Direct Investment Incentives

Magnus Blomstrom and Ari Kokko

No 168, EIJS Working Paper Series from Stockholm School of Economics, The European Institute of Japanese Studies

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: FDI; Incentives; Industrial policy (search for similar items in EconPapers)
JEL-codes: J23 O12 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2003-01-01
New Economics Papers: this item is included in nep-ifn and nep-lam
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (253)

Published in Foreign Direct Investment in the Real and Financial Sector of Industrial Countries, Herrmann, H. , Lipsey, R.E. (eds.), 2003, pages 37-56, Springer Verlag, Hamburg.

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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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Persistent link: https://EconPapers.repec.org/RePEc:hhs:eijswp:0168

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