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International competition for multinational investment

Haaland, Jan Ingvald Meidell; Wooton, Ian
Working paper
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URI
http://hdl.handle.net/11250/163014
Date
1998-08
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  • Discussion papers (SAM) [607]
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.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
1998:14

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