In this paper we closely examine the implications of comparative advantage for foreign direct investment (FDI) incentives. Particularly, we find that the host country’s comparative advantage sector is more attractive to inward FDI than its comparative disadvantage sector. This finding is supported by empirical evidence. However, such a cross-sector FDI comparison has not been studied, theoretically and explicitly, in the literature. This paper contributes to the literature by filling this gap. We have also obtained some other results such as how the degrees of comparative advantage and absolute advantage affect FDI incentives, and whether a multinational corporation (MNC) should allow its foreign subsidiary to be run independently.
|Number of pages||26|
|Journal||Annals of Economics and Finance|
|Publication status||Published - 2003|
Bibliographical noteThe paper benefits from presentation at the “1998 North American Summer Meeting of the Econometric Society” held in Montreal, the “International Trade, Factor Mobility and Asia” workshop held in Hong Kong, and the IEFS session of “1999 AEA Meetings” held in New York. The paper has been previously circulated under the title “FDI Incentives – The Principle of Comparative Advantage once Again”.
- Foreign direct investment (FDI)
- Multinational corporation (MNC)
- Comparative advantage
- Absolute advantage
- Market opportunity
- FDI incentives