IMF Working Papers

Shifting Advantages: Do Subsidies Shape Cross-Border Investment?

By Michele Ruta, Monika Sztajerowska

April 11, 2025

Download PDF More Formats on IMF eLibrary Order a Print Copy
More formats on IMF eLibrary Order a Print Copy

Preview Citation

Format: Chicago

Michele Ruta, and Monika Sztajerowska. "Shifting Advantages: Do Subsidies Shape Cross-Border Investment?", IMF Working Papers 2025, 080 (2025), accessed April 20, 2025, https://doi.org/10.5089/9798229009096.001

Export Citation

  • ProCite
  • RefWorks
  • Reference Manager
  • BibTex
  • Zotero
  • EndNote

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Industrial policies have been on the rise with subsidies provided to firms accounting for the lion’s share of interventions. The effects of these measures on productivity, trade, investment and other economic and non-economic variables are largely an open question. This paper examines empirically the link between subsidies and inward cross-border investment using data on greenfield investments across a large sample of advanced and emerging economies between 2010 and 2020. Employing a difference-in-difference approach, we find that—while the average effect of all subsidies is zero—financial subsidies, such as loans and loan guarantees, increase new cross-border investment projects by an average of 7%. These effects are primarily driven by capital-intensive sectors in capital-abundant countries, suggesting that subsidies can affect foreign direct investment—but they reinforce (rather than reshape) countries’ comparative advantage.

Subject: Balance of payments, Capital productivity, Comparative advantage, Foreign direct investment, Human capital, International trade, Labor, Production

Keywords: Capital productivity, Comparative advantage, Foreign direct investment, Foreign Direct Investment, Global, Human capital, Industrial Policy, Subsidies

Publication Details

You May Also Be Interested In...

Estimating Potential Output in Niger: Niger

April 18, 2025

IMF Committee on Balance of Payments Statistics 2024 Annual Report

April 18, 2025

Tracing the Slowdown of Labor Productivity Growth: Sweden

April 15, 2025

Embracing Digitalization to Accelerate Oman's Economic Transformation: Oman

April 15, 2025