Search

This paper presents an empirical analysis on the extent to which a country's welfare spending influences foreign direct investment (FDI) decisions, particularly as they relate to relocations. We argue, and subsequently empirically test, that higher welfare spending by governments attracts foreign investment. Moreover, multinational enterprises (MNEs) located in high welfare spending countries have a lower likelihood of relocating to foreign markets compared with MNEs in countries with lower levels of welfare spending. Using data for MNEs in 27 OECD countries, our results show that MNE location decisions are positively related to welfare spending. These findings appear to be more pronounced for MNEs operating in high-tech rather than in low-tech manufacturing industries. Our results suggest that high welfare spending does deter FDI in the case of host developing economies, but that these effects are small. We suggest that this is a result of firms being more hesitant to invest in developing countries where they will be expected to contribute to welfare. This suggests that a degree of trust between firms and host country governments is required on institution building and the delivery of welfare. Our results suggest that the conventional wisdom of firms avoiding or relocating away from locations due to the associated additional costs of high welfare spending is questionable, but that firms need to be confident on the efficacy of this welfare expenditure. Keywords: globalization, institutions, multinational enterprises, relocation, welfare state JEL classification codes: F23, F68, H53, L23, P16, 1. Introduction Developed countries have experienced a rapid increase in international integration, as well as growing public sectors and expanding welfare states since the end of the Second World War. [...]

The UK is made up of broadly two types of local economies, characterised by two types of equilibria. One, 'high-skill equilibria', consists of richer localities throughout the country (e.g. London, South East, Cambridge, Oxford) which attract high-tech FDI, venture capitalists, high levels of innovation, skills and productivity. Another, 'low-skill equilibria' locations, have low levels of innovation, skills and productivity, even despite high levels of activity, in some cases. The notion of the two equilibria was recognised in an earlier volume of Contemporary Social Science and discussed in some detail in the editorial by Fai and Tomlinson (2023). The purpose of this paper is to explore the potential policy interventions for inward investment, focused not merely on growth, but on productivity growth, with the core purpose of helping lagging regions recover. We present a framework which explores how inward investment can be leveraged to 'move the dial' in lagging regions of the UK, rather than merely offering more of the same in terms of output, productivity and employment opportunities – which would attract activity that is subsequently rather divorced from the rest of the local economy. Our proposed framework summarises the nature of the interaction between multinational enterprises (MNEs) and the host economy, enriched with insights from supply chain analysis, economic geography and the trade-offs involved in delivering transformative growth and productivity. [ABSTRACT FROM AUTHOR]

At the time of writing, the UK government is attempting to tackle place-based inequality through its 'levelling up' agenda. To be effective, such interventions require local institutions with the capacity, powers, and budgets to develop and implement long-term strategies. Multi-level metagovernance, the ongoing reorganisation of local governance systems by the central state, has become a salient political process in England, characterised by fragmented system design, distorted local strategies, micromanagement and mistrustful central–local relations. These various problems are underpinned by a problematic combination of quasi-markets and state hierarchy. Together, these metagovernance mechanisms significantly constrain local capacity to deliver economic development. [ABSTRACT FROM AUTHOR]