Multinational Investment, Industry Risk and Policy Competition

24 Pages Posted: 5 Feb 2002

See all articles by Jan I. Haaland

Jan I. Haaland

Norwegian School of Economics (NHH) - Department of Economics; Centre for Economic Policy Research (CEPR)

Ian Wooton

University of Strathclyde - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2002

Abstract

In an uncertain business climate, multinational enterprises must take account of future exit costs in deciding where to locate a branch plant. We study how differences in national labour-market conditions between countries influence this decision. Other things equal, the most attractive location has a flexible labour market (low closure costs) together with a low opportunity cost of employment (high unemployment). In a game between two countries, a nation with an inflexible labour market and high unemployment will succeed in attracting low-risk firms, while that with more flexible labour markets and low unemployment will win the game for higher risk firms.

Keywords: Multinational firms, investment subsidies, entry, exit, uncertainty

JEL Classification: D92, F12, F23

Suggested Citation

Haaland, Jan I. and Wooton, Ian, Multinational Investment, Industry Risk and Policy Competition (January 2002). Available at SSRN: https://ssrn.com/abstract=298844

Jan I. Haaland (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
Bergen, N-5045
Norway
+4755959255 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ian Wooton

University of Strathclyde - Department of Economics ( email )

Sir William Duncan Building
130 Rottenrow
Glasgow G4 0GE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany