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Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses

Andrew Charlton

No 203, OECD Development Centre Working Papers from OECD Publishing

Abstract: Competition among governments to attract foreign direct investment (FDI) has grown significantly. This paper investigates the extent to which the size of incentive packages offered to investors by governments is driven by competitive pressure to attract mobile investment projects. It finds that such competition is in many cases a significant determinant of the size and nature of investment incentives.Competition can have both positive and negative effects on domestic and international welfare. Negative outcomes typically occur when governments offer attraction packages that are larger than the value of the benefits to the host economy, or when governments resort to inefficient incentive instruments.Increased transparency would significantly reduce the scope for negative welfare outcomes. Proper accounting for incentives helps to ensure that expenditure is aligned with policy goals, reduces the potential for corruption and improves the efficiency of the negotiation process ... La concurrence que se font les pouvoirs publics pour attirer les investissements directs étrangers (IDE) s’est nettement intensifiée. Ce Document évalue dans quelle mesure l’ampleur des faveurs accordées aux investisseurs par les pouvoirs publics dépend des pressions concurrentielles exercées pour attirer des projets d’investissement mobiles. Il en ressort que, dans bien des cas, cette concurrence détermine largement la nature et l’étendue des avantages consentis.La concurrence peut avoir des effets à la fois positifs et négatifs sur le bien-être au niveau national et international. Les effets négatifs se manifestent lorsque les pouvoirs publics concèdent à l’investisseur des avantages supérieurs aux bénéfices reçus par l’économie hôte, ou lorsqu’ils ont recours à des incitations inefficientes.Ces résultats négatifs sur le bien-être seraient grandement réduits par des mesures visant à améliorer la transparence. Une comptabilité adéquate des incitations contribuerait à garantir ...

Date: 2003-01-01
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