DP3152 Multinational Investment, Industry Risk and Policy Competition
|Author(s):||Jan I. Haaland, Ian Wooton|
|Publication Date:||January 2002|
|Keyword(s):||entry, exit, investment subsidies, multinational firms, uncertainty|
|JEL(s):||D92, F12, F23|
|Programme Areas:||International Trade and Regional Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3152|
In an uncertain business climate, multinational enterprises must take account of future exit costs in deciding where to locate a branch plant. We study how differences in national labour-market conditions between countries influence this decision. Other things equal, the most attractive location has a flexible labour market (low closure costs) together with a low opportunity cost of employment (high unemployment). In a game between two countries, a nation with an inflexible labour market and high unemployment will succeed in attracting low-risk firms, while that with more flexible labour markets and low unemployment will win the game for higher risk firms.