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Fiscal competition for foreign direct investment with knowledge spillovers and trade costs

journal contribution
posted on 18.01.2021, 16:02 by Ben FerrettBen Ferrett, Daniel Gravino
We develop a model of fiscal competition for foreign direct investment, and show that the decision of multinational firms to locate in the proximity of indigenous firms – which can be thought of as agglomeration – may be the result of the provision of government incentives that aim to capitalise on the potential for knowledge spillovers to indigenous industry. Somewhat different but complementary to existing literature, we also show that fiscal competition may increase the welfare of both winning and losing countries in the auction for the multinational firm when it leads to the relocation of multinationals away from countries that do not have the potential to benefit from knowledge spillovers to countries that do. As trade costs fall and the potential for knowledge spillovers increases, both outcomes become more likely in equilibrium.

History

School

  • Business and Economics

Department

  • Economics

Published in

The World Economy

Volume

44

Issue

10

Pages

2820-2836

Publisher

Wiley

Version

AM (Accepted Manuscript)

Rights holder

© Wiley

Publisher statement

This is the peer reviewed version of the following article: FERRETT, B. and GRAVINO, D., 2021. Fiscal competition for foreign direct investment with knowledge spillovers and trade costs. The World Economy, 44(10), pp. 2820-2836, doi:10.1111/twec.13073, which has been published in final form at https://doi.org/10.1111/twec.13073. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

Acceptance date

07/12/2020

Publication date

2021-01-09

Copyright date

2021

ISSN

0378-5920

eISSN

1467-9701

Language

en

Depositor

Dr Ben Ferrett Deposit date: 9 January 2020