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Multinational Firms and Strategic FDI subsidies

 

Yasunori

 Ishii

 

 

Review of International Economics

2009

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With increases in the number of multinational, trade policies have been gradually losing their effectiveness and thus governments have gradually shifted their international political attentions from trade policies to FDI policies. Therefore, the purpose of this paper is to examine strategic FDI subsidies and investigate the effects of FDI subsidies on firms¡¦ FDI levels.

 

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Optimal FDI inflow and FDI outflow subsidies depend on whether the governments care about labor employment.

¡´          While the optimal domestic and foreign outflow FDI subsidies are zero when the governments neglect employment assessment, they are negative when the governments assess labor employment.

¡´          The optimal domestic (foreign) inflow FDI subsidy when the governments consider labor employment is larger than that when the governments do not consider labor employment as the absolute value of the effect of a change in foreign (domestic) inflow FDI on labor employment of the domestic (foreign) parent firm is smaller than the effect of a change in foreign (domestic) inflow FDI on labor employment of the foreign (domestic) subsidiary firm, and vice versa.

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