Multinational Investment, Industry Risk and Policy Competition
Jan I. Haaland
Norwegian School of Economics (NHH) - Department of Economics; Centre for Economic Policy Research (CEPR)
University of Strathclyde - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
CEPR Discussion Paper No. 3152
In an uncertain business climate, multinational enterprises must take account of future exit costs in deciding where to locate a branch plant. We study how differences in national labour-market conditions between countries influence this decision. Other things equal, the most attractive location has a flexible labour market (low closure costs) together with a low opportunity cost of employment (high unemployment). In a game between two countries, a nation with an inflexible labour market and high unemployment will succeed in attracting low-risk firms, while that with more flexible labour markets and low unemployment will win the game for higher risk firms.
Number of Pages in PDF File: 24
Keywords: Multinational firms, investment subsidies, entry, exit, uncertainty
JEL Classification: D92, F12, F23
Date posted: February 5, 2002
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