Competing for Foreign Direct Investment
The paper analyzes ‘subsidy games’ between countries in order to attract foreign direct investment (FDI) from a third country. The winner of this game results from the interaction of two factors, relative country size and employment gains from FDI: a large (or ‘central’) country is more likely to at...
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| Veröffentlicht in: | Review of international economics 2000-05, Vol.8 (2), p.360-371 |
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| container_title | Review of international economics |
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| creator | Barros, Pedro P. Cabral, Luís |
| description | The paper analyzes ‘subsidy games’ between countries in order to attract foreign direct investment (FDI) from a third country. The winner of this game results from the interaction of two factors, relative country size and employment gains from FDI: a large (or ‘central’) country is more likely to attract FDI, and so is a country with high unemployment. The subsidy equilibrium is compared with two alternative solutions: zero subsidies and first‐best subsidies. It is shown that total welfare may be greater under subsidy competition than under zero subsidies: the gains from efficient location implied by subsidy competition may more than outweigh the losses from higher subsidies. Moreover, departing from subsidy competition to zero subsidies or to first‐best subsidies (without side payments) implies a gain to one country and a loss to the other. This suggests that it may be difficult to reach a consensus to move away from the status quo of subsidy competition. |
| doi_str_mv | 10.1111/1467-9396.00227 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0965-7576 |
| ispartof | Review of international economics, 2000-05, Vol.8 (2), p.360-371 |
| issn | 0965-7576 1467-9396 |
| language | eng |
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| source | RePEc; Wiley Online Library Journals Frontfile Complete; Business Source Complete; Periodicals Index Online |
| subjects | Competition Economic models Foreign direct investment Foreign enterprises Foreign investment Government subsidies International investment State intervention Studies Subsidies Unemployment Welfare economics |
| title | Competing for Foreign Direct Investment |
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