Foreign Direct Investment Subsidy

43 Pages Posted: 11 Apr 2014

See all articles by Norvald Instefjord

Norvald Instefjord

University of Essex - Essex Business School

Vivekanand Nawosah

University of Essex

Pei Yang

University of Essex

Date Written: April 9, 2014

Abstract

We address the problem of optimal form and timing of FDI subsidy, and the impact of competition on these. We find that the optimal subsidy must include an element of discouragement against delaying the timing of the investment for the firm to prevent the firm from extracting rent from the host country. The optimal timing depends on factors related to the industry where the investment is made, and factors related to the welfare effects of the investment as well as the market for subsidy. These results generate empirical predictions as the subsidy we are the most likely to see is the subsidy that speeds up the investment the most. The factors influencing subsidy are the welfare effects relative to the amortised investment cost and the strategic commitment value of investment and subsidy.

Keywords: Foreign direct investment, Subsidy, Strategic commitment

JEL Classification: D92, E62, G31, H21

Suggested Citation

Instefjord, Norvald and Nawosah, Vivekanand and Yang, Pei, Foreign Direct Investment Subsidy (April 9, 2014). Available at SSRN: https://ssrn.com/abstract=2423102 or http://dx.doi.org/10.2139/ssrn.2423102

Norvald Instefjord (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Vivekanand Nawosah

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Pei Yang

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
42
Abstract Views
595
PlumX Metrics