Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234135 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 161/2021
Publisher: 
Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE), Berlin
Abstract: 
In recent decades, governments around the world have increasingly used various forms of state aid to try to attract and retain the business activity of foreign-owned multinational corporations. Yet, in most cases, this "commercialisation of state sovereignty" (Palan, 2002) has failed to catalyse foreign investment and economic growth as intended. This paper seeks to understand the general failure of such commercialised state strategies, while also explaining how demand and income growth in some notable exceptions can be understood. To this end, a simple demand-led model is presented that suggests that foreign-targeted state aid may lead to beggarthy-neighbour, FDI-driven growth in one economy if certain conditions are met, such as there being sufficiently little policy competition from other countries. It is shown that the exceptional cases tend to be the early movers, i.e. those few economies and special economic zones that engaged in the commercialisation of state sovereignty before the widespread competitive emulation that followed. This paper argues that state aid for the attraction of foreign multinationals is unlikely to be an effective growth strategy in the current environment of intense state competition and that international coordination on corporation tax and other forms of state aid is desirable.
Subjects: 
policy competition
foreign direct investment
tax havens
export platforms
JEL: 
E12
F23
F62
H26
H71
Document Type: 
Working Paper

Files in This Item:
File
Size
694.32 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.