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Global corporations and local politics: income redistribution vs. FDI subsidies

Authors
Journal
Journal of Development Economics
0304-3878
Publisher
Elsevier
Publication Date
Volume
74
Issue
2
Identifiers
DOI: 10.1016/j.jdeveco.2003.06.004
Keywords
  • Income Inequality
  • Fdi
  • Policy Reversals
  • Redistribution
  • Citizen-Candidate Model
Disciplines
  • Economics
  • Political Science

Abstract

Abstract Income inequality has been used empirically to explain the mixed performance of developing countries in attracting FDI. This paper sets up a theoretical model that links the skewness of the income distribution to a host government's willingness to subsidize FDI. Large skewness makes government subsidies less likely because the median income person prefers redistribution. Little skewness, however, does not guarantee FDI. In addition, host governments may switch from positive to no subsidies if a shift in economic variables changes how the policymaker trades off the FDI benefits and income redistribution, thereby offering an alternative to the conventional hold-up story.

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