Abstract

The objective of this paper is to empirically assess the recently introduced models of subsidy competition based on the classical oligopoly theories. Three crucial scenarios (coordination, weak competition, and fierce competition) are tested employing iteratively re-weighted least squares, fixed effects, and dynamic Blundell-Bond estimator on the data from the World Competitiveness Yearbook. The results suggest that none of the scenarios can be strongly supported – although there is some weak support for cooperation –, and thus that empirical evidence is not in accordance with the tested models. There is no evidence for a significant international competition for FDI. It seems that, however, by means of FDI incentives, governments try to compensate foreign investors for high wages and low productivity of their countries’ labor force.

A hump-shaped curve: spillover adoption is zero until a country reaches share b of the top productivity in the sample, then rises and falls back to zero at the frontier
Fig: The assumed mechanism of spillover adoption

Reference: Tomas Havranek, Zuzana Irsova (2010), "On the Intensity of International Subsidy Competition for FDI." Theoretical and Applied Economics 17(2): 25-54.

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How to cite

Tomas Havranek, Zuzana Irsova (2010), "On the Intensity of International Subsidy Competition for FDI." Theoretical and Applied Economics 17(2): 25-54.

BibTeX 
@article{havranek2010subsidy,
  author  = {Tomas Havranek and Zuzana Irsova},
  title   = {On the Intensity of International Subsidy Competition for FDI},
  journal = {Theoretical and Applied Economics},
  volume  = {17},
  number  = {2},
  pages   = {25--54},
  year    = {2010},
}