New Horizons in International Business series
Edited by Lorraine Eden and Wendy Dobson
Chapter 13: Location Incentives and Inter-state Competition for FDI: Bidding Wars in the Automotive Industry
1 Maureen Appel Molot Georgia lures Chrysler with $320 million: Windsor was dropped from consideration last month. (Bynum, 2002: F2) Ford warns: subsidize or lose jobs. (Keenan, 2002: B1, B4) States’ bidding war over Mercedes plant made for costly chase. (Browning and Cooper, 1993: A6) Buying auto jobs by the thousands: should government spend $160 000 for a spot on the line? (Brent, 2003b: FP1) INTRODUCTION These headlines capture the essence of the question addressed in this chapter – the intensity of inter-jurisdictional bidding wars for auto assembly plant investment. As Safarian (1993) notes, investment incentives have long been used by governments to attract investment and, in many instances, incentives can comprise a substantial portion of the total investment (p. 438). Although these headlines speak to North America, competitive bidding for auto plant investment has occurred elsewhere – in Brazil,2 India3 and East Asia4 in the 1990s and in Europe in the 1980s (Mytelka, 2000, pp. 286–90 and Charlton, 2003). Whether called ‘the location incentives game’, ‘bidding wars’ or a ‘locational tournament’, the point is the same – the inter-jurisdictional competition to attract foreign direct investment (FDI). The growth in the supply of investment worldwide has stimulated competition among governments desirous of attracting ‘their share’ of those funds (Oman, 2000, p. 15). Locational tournaments are not unique to the auto assembly industry – they have unfolded in Europe in the electronics industry (Mytelka, 2000, pp. 290–93) and among the Association of South East Asian Nations (ASEAN) for investments in high tech...