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- W3122400800 abstract "This paper analyzes the welfare e®ects of subsidies to attract multinational corporations, in a setting where ¯rms are heterogeneous in their productivity levels. I show that the use of a small subsidy raises welfare in the FDI host country, with the consumption gains from attracting more multinationals exceeding the direct costs of funding the subsidy program through a tax on labor income. This welfare gain stems from a selection e®ect, whereby the subsidy induces only the most productive exporters to switch to servicing the host's market via FDI. I further show that the welfare gain from a subsidy to variable costs is larger than from a subsidy to the ¯xed cost of conducting FDI, since a variable cost subsidy also raises the ine±ciently low output levels stemming from each ¯rm's mark-up pricing power." @default.
- W3122400800 created "2021-02-01" @default.
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- W3122400800 date "2007-08-01" @default.
- W3122400800 modified "2023-09-27" @default.
- W3122400800 title "Subsidies for FDI: Implications from a Model with Heterogeneous Firms" @default.
- W3122400800 hasPublicationYear "2007" @default.
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