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The Economics of Foreign Direct Investment Incentives

Author

Listed:
  • Magnus Blomstrom
  • Ari Kokko
Abstract
This paper suggests that the use of investment incentives focusing exclusively on foreign firms, although motivated in some cases from a theoretical point of view, is generally not an efficient way to raise national welfare. The main reason is that the strongest theoretical motive for financial subsidies to inward FDI spillovers of foreign technology and skills to local industry is not an automatic consequence of foreign investment. The potential spillover benefits are realized only if local firms have the ability and motivation to invest in absorbing foreign technologies and skills. To motivate subsidization of foreign investment, it is therefore necessary, at the same time, to support learning and investment in local firms as well.

Suggested Citation

  • Magnus Blomstrom & Ari Kokko, 2003. "The Economics of Foreign Direct Investment Incentives," NBER Working Papers 9489, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9489
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    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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