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

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...

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Main Authors:	Ben Ferrett, Daniel Gravino
Format:	Default Article
Published:	2021
Subjects:	Economics Applied Economics Policy and Administration FDI fiscal competition knowledge spillovers trade costs firm location
Online Access:	https://hdl.handle.net/2134/11558823.v1
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id	rr-article-11558823
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spelling	rr-article-115588232021-01-09T00:00:00Z Fiscal competition for foreign direct investment with knowledge spillovers and trade costs Ben Ferrett (1250850) Daniel Gravino (1248282) Economics Applied Economics Policy and Administration FDI fiscal competition knowledge spillovers trade costs firm location 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. 2021-01-09T00:00:00Z Text Journal contribution 2134/11558823.v1 https://figshare.com/articles/journal_contribution/Fiscal_competition_for_foreign_direct_investment_with_knowledge_spillovers_and_trade_costs/11558823 CC BY-NC-ND 4.0
institution	Loughborough University
collection	Figshare
topic	Economics Applied Economics Policy and Administration FDI fiscal competition knowledge spillovers trade costs firm location
spellingShingle	Economics Applied Economics Policy and Administration FDI fiscal competition knowledge spillovers trade costs firm location Ben Ferrett Daniel Gravino Fiscal competition for foreign direct investment with knowledge spillovers and trade costs
description	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.
format	Default Article
author	Ben Ferrett Daniel Gravino
author_facet	Ben Ferrett Daniel Gravino
author_sort	Ben Ferrett (1250850)
title	Fiscal competition for foreign direct investment with knowledge spillovers and trade costs
title_short	Fiscal competition for foreign direct investment with knowledge spillovers and trade costs
title_full	Fiscal competition for foreign direct investment with knowledge spillovers and trade costs
title_fullStr	Fiscal competition for foreign direct investment with knowledge spillovers and trade costs
title_full_unstemmed	Fiscal competition for foreign direct investment with knowledge spillovers and trade costs
title_sort	fiscal competition for foreign direct investment with knowledge spillovers and trade costs
publishDate	2021
url	https://hdl.handle.net/2134/11558823.v1
_version_	1798364563794558976

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

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