The provision of public inputs and foreign direct investment

Research output: Contribution to journalArticlepeer-review

Abstract

A small open economy model is developed that incorporates direct and indirect effects on multinational location decisions associated with public input provision. It is shown that when agglomeration externalities are present in local intermediate goods markets, public input provision can affect multinational firms directly by lowering the fixed costs of production and indirectly by decreasing the costs of intermediate inputs, but growth is contingent on achieving a critical mass of investment. It is further shown that the effectiveness of a policy of public input provision over a policy of subsidy incentives is critically dependent on key market parameters in the host country. (JEL F2, H4, O1).

Original languageEnglish
Pages (from-to)170-184
Number of pages15
JournalContemporary Economic Policy
Volume25
Issue number2
DOIs
StatePublished - Apr 2007

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