EIJS Working Papers Series
The Economics of Foreign Direct Investment Incentives
() and 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.
Keywords: FDI; Incentives; Industrial policy; (follow links to similar papers)
JEL-Codes: J23; O12; (follow links to similar papers)
25 pages, January 1, 2003
- This paper is published as:
Blomström, Magnus and Ari Kokko, (2003), 'The Economics of Foreign Direct Investment Incentives' in Herrmann, H. and R.E. Lipsey (eds.) Foreign Direct Investment in the Real and Financial Sector of Industrial Countries, pages 37-56, Springer Verlag, Hamburg.
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