Working Paper: CEPR ID: DP2660
Authors: Jan I. Haaland; Ian Wooton
Abstract: Although many countries welcome inward investments by multinational firms (MNEs), it is often perceived that MNEs readily close down production in bad times. We study the choice of an MNE in deciding whether to establish a branch plant within a region, explicitly taking into account exit, as well as entry, costs. Protecting workers by having strict lay-off rules deters potential investment while subsidies attract it. We examine the policy trade-off for a host government and investigate how uncertainty affects the attractiveness of investment in a particular location. Just how much does the ease of exit influence the entry decision?
Keywords: entry; exit; multinational firms; subsidies; uncertainty
JEL Codes: D92; F12; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Strict layoff rules (J63) | MNE entry decisions (F23) |
| Investment subsidies (G31) | MNE entry decisions (F23) |