Subsidies for FDI: Implications from a model with heterogeneous firms

Subsidies for FDI: Implications from a Model with Heterogeneous Firms∗

This paper analyzes the welfare effects of subsidies to attract multinational corporations when firms are heterogeneous in their productivity levels. I show that the use of a small subsidy raises welfare in the FDI host country, with the consumption gains from attracting more multinationals exceeding the direct cost of funding the subsidy program through a tax on labor income. This welfare gain...

Appendix to “Subsidies for FDI: Implications from a Model with Heterogeneous Firms”

Time Zones and FDI with Heterogeneous Firms

Based on Helpman et al. (2004) we propose a simple two-country (Home and Foreign) model with heterogeneous firms to capture the role of FDI via utilizing time zone differences. Two countries are located in different time zones and there is no overlap in daily working hours. It will be shown that productivities of the firms undertaking FDI are higher than the productivities of non-FDI f i r m s ...

Export Subsidies in a Heterogeneous Firms Framework

We evaluate the impact of firm-specific export subsidies on exports in Colombia. Using a two-stage Heckman selection procedure, we obtain firm-specific predicted subsidy amounts that can be explained by the characteristics that determine the firms’ eligibility for the government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries,...

Export Subsidies in a Heterogeneous Firms Framework: Evidence from Colombia

We evaluate the impact of firm-specific export subsidies on exports in Colombia. Using a twostage selection correction procedure, we obtain firm-specific predicted subsidy amounts that can be explained by the characteristics that determine the firms’ eligibility for government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries, w...