Financial incentive programs and FDIs

What is it about?

This study explores the process of firms’ participation in financial subsidies supporting outward FDIs. Based on firm-level data we show that firms self-select according to the balance between application costs and expected benefits. These findings have interesting policy implications. First, participation rate among the target group could be enhanced by lowering application costs. Second, to avoid deadweight effects expected benefits should carry a higher value for target firms.

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Why is it important?

This is the first paper that explicitly addresses the participation process with regard to home country measures (HCMs). Given that many developed countries adopt HCMs, the Italian experience provides an interesting policy case. In addition, although focused on outward investment policy, with appropriate adjustments the proposed model is suitable to be extended to the assessment of other types of public fund allocation processes.