The Effect of Reshoring Policy on the Host and Home Countries

This theoretical study explores how a home country's policies influence where multinational companies choose to produce. The study models subsidy negotiations between firms and both the home and foreign countries, revealing that offering reshoring subsidies might lead to repatriation of the multinational firm. If the host country values job creation's welfare gain from reshoring, a large reshoring subsidy from the home government can be seen as socially acceptable and encourage reshoring. However, if the home governments prioritize job creation less and the foreign government aims to retain the firm, pushing for reshoring may increase costs for the foreign country and reduce its social welfare.