Multinational Investment, Industry Risk and Policy Competition

24 Pages Posted: 5 Feb 2002  

Jan I. Haaland

Norwegian School of Economics (NHH) - Department of Economics; Centre for Economic Policy Research (CEPR)

Ian Wooton

University of Strathclyde - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2002

Abstract

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.

Keywords: Multinational firms, investment subsidies, entry, exit, uncertainty

JEL Classification: D92, F12, F23

Suggested Citation

Haaland, Jan I. and Wooton, Ian, Multinational Investment, Industry Risk and Policy Competition (January 2002). CEPR Discussion Paper No. 3152. Available at SSRN: https://ssrn.com/abstract=298844

Jan I. Haaland (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
Bergen, N-5045
Norway
+4755959255 (Phone)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Ian Wooton

University of Strathclyde - Department of Economics ( email )

Sir William Duncan Building
130 Rottenrow
Glasgow G4 0GE
United Kingdom

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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