International Competition for Multinational Investment

CEPR Discussion Paper Series Number 1937

Posted: 24 Sep 1998

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: July 1998

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.

JEL Classification: F12, F23

Suggested Citation

Haaland, Jan I. and Wooton, Ian, International Competition for Multinational Investment (July 1998). CEPR Discussion Paper Series Number 1937, Available at SSRN: https://ssrn.com/abstract=128330

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

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