The Economics of Foreign Direct Investment Incentives

26 Pages Posted: 13 Feb 2003 Last revised: 28 Feb 2015

See all articles by Magnus Blomstrom

Magnus Blomstrom

Stockholm School of Economics - Department of Economics; National Bureau of Economic Research (NBER), at New York; Centre for Economic Policy Research (CEPR)

Ari Kokko

Stockholm School of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2003

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.

Suggested Citation

Blomstrom, Magnus and Kokko, Ari, The Economics of Foreign Direct Investment Incentives (February 2003). NBER Working Paper No. w9489. Available at SSRN: https://ssrn.com/abstract=379960

Magnus Blomstrom (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
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+46 8 736 9265 (Phone)
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National Bureau of Economic Research (NBER), at New York

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Centre for Economic Policy Research (CEPR)

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Ari Kokko

Stockholm School of Economics ( email )

P.O. Box 6501
Stockholm
Sweden
+46 8 736 9365 (Phone)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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