What shapes automotive investment decisions in a contemporary global economy?

Abstract

Amid considerable public debate, governments across North America have offered rich incentive packages to entice investment from multinational automotive corporations. This article explores the relative importance of government incentives in influencing automotive corporations' decisions to invest in Canada on the basis of a data analysis of investment incentives in Canada and the United States, a case study of Toyota's decision to invest in the Woodstock assembly plant, and a series of interviews with industry and government stakeholders. Our article concludes that although locational costs are a major determinant of investment decisions, the corporate decision to build a new assembly plant is a multimillion-dollar longterm investment with considerable risks. In assessing the risks and estimated costs of these investments, we found evidence of major variances between companies in what determined their decision. Although incentives were usually important, our research points to the influence on investment decisions of soft factors, including the structural relationship between the home office and branch plant; leadership of branch plant operations; and relationships between actors, in particular between corporate actors at headquarters and the branch plant, different levels of government, and government and corporate actors. Finally, we show that institutional fragmentation, including competition within and between different levels and branches of government, can erode policy effectiveness when governments attempt to attract foreign capital.