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THE PROVISION OF PUBLIC INPUTS AND FOREIGN DIRECT INVESTMENT
Author(s) -
KELLENBERG DEREK K.
Publication year - 2007
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/j.1465-7287.2006.00024.x
Subject(s) - multinational corporation , externality , subsidy , foreign direct investment , incentive , economies of agglomeration , economics , production (economics) , investment (military) , public good , public economics , business , international economics , microeconomics , industrial organization , market economy , macroeconomics , finance , politics , political science , law
A small open economy model is developed that incorporates direct and indirect effects on multinational location decisions associated with public input provision. It is shown that when agglomeration externalities are present in local intermediate goods markets, public input provision can affect multinational firms directly by lowering the fixed costs of production and indirectly by decreasing the costs of intermediate inputs, but growth is contingent on achieving a critical mass of investment. It is further shown that the effectiveness of a policy of public input provision over a policy of subsidy incentives is critically dependent on key market parameters in the host country . ( JEL F2, H4, O1)