Incentives-based Competition for Foreign Direct Investment

Employment and state incentives in transition economies: Are subsidies for FDI ineffective? The case of Serbia

“…Bellak et al (2008) suggest that subsidies come as a result of a government's intention to fix market failures in a situation where there is a large discrepancy between the social and private rate of return on investments. However, very often, politically motivated subsidies are used in the absence of market failures since governments are under political pressure to be portrayed as job creators (Christiansen et al, 2003).…”

“…It is argued that the use of subsidies to attract FDI is a waste of money that should instead be used to advance transparency and true institutional reforms. Incentives can be seen as a substitute for high institutional quality, in environments where property rights are not adequately protected (Christiansen et al, 2003). At the same time, politicians usually extol FDI due to the immediate effects of new plants on employment (Greenstone and Moretti, 2003).…”

“…MNEs attracted by subsidies (and not by local knowledge or other business infrastructure) tend to disinvest when state subsidies are exhausted, which makes investments unsustainable in the long run. Great availability of incentives would induce companies to move frequently, to more incentive-generous locations (Christiansen et al, 2003).…”

“…Hungerford and Gravelle (2010) suggest that empirical testing about the effectiveness of subsidies in stimulating FDI-generated employment may be successful but that the costs for the state, on average, have been higher than the benefits. Empirical studies usually disregard "invisible" costs beyond the amount of subsidies; those include the costs of public administration that deals with this issue (Christiansen et al, 2003). Subsidized FDI may generate employment but this cannot compensate for social inequality, since subsidizing means taking money from all workers (taxpayers) and directing it towards business owners, not the socially vulnerable.…”

The Location Premises Of FDI In Poland. The Case Of The Lodz Province

“…They may be of interest not only to central governments but also 160 Tomasz Dorożyński, Janusz Świerkocki, Wojciech Urbaniak to regional and local authorities (Christiansen, Oman, Charlton 2003). This is true not only of federal but also unitary states, where territorial self-governments are separate entities with some degree of independence from the central government.…”