Year: 1999
Type: article
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
Authors: Jan I. Haaland, Ian Wooton
Institutions: Norwegian School of Economics, University of Glasgow
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W2102801504