Abstract
This paper develops a new model for testing the role of incentives in FDI location choice by integrating the theory of the MNE with new approaches to location theory. From the theory our paper derives four testable hypotheses related to the role of policy variables in the location choice of Japanese MNEs in Singapore. Specifically we test for the existence of regional investment clusters and national tournaments as key elements in the FDI location decision. We also test for differences in the incentive preferences of export-oriented versus market-oriented investors and for first investments compared to reinvestments. Using survey data from 134 Japanese MNEs our study confirmed the existence of a Southeast Asian regional investment cluster and a location tournament between regional states. Our study also found that different incentives attracted export-oriented and market-oriented investors, but there were no significant differences in the incentive preferences of first investors compared to re-investors. The policy implications of these findings are discussed.
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