24 Pages Posted: 5 Feb 2002
Date Written: January 2002
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: 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
By Xavier Vives
By Holger Gorg
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File name: DP3152.
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