Foreign Direct Investment and Politics: The Swedish Model

Abstract

Sweden is home to remarkably many large, prosperous multinationals. We argue that this is partly the result of industrial policies that have been biased in favor of large firms, and an institutional setting where regulations and controls have facilitated investment abroad by Swedish firms, while impeding foreign direct investment in Sweden. A particularly important feature of the institutional environment is that Swedish labor unions have supported Swedish investment abroad, but opposed foreign investment in Sweden. The paper outlines the development of Swedish foreign investment policies, describes the traditional Swedish model of industrial policy, and discusses the attitudes of the Swedish labor movement. The implications for long run growth of the Swedish industrial policy are also discussed. We argue that the large multinationals have been supported at the expense of small and medium sized firms, and that the non-multinational sector is therefore less dynamic in Sweden than in many other countries.

JEL Classification: F23, F21, J51