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Swedish FDI falls to zero "despite" the welfare state

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08/26/2005

Today it was reported in the Swedish business news paper Dagens Industri that Foreign Direct Investments in Sweden fell to zero during the first half of this year. It would be interesting to see how a certain Paul Krugman explains that. Last month, as you may remember, Krugman made a big deal about a decision by Toyota to build a car factory in Canada. This, he claimed, was the result of Southerners being too uneducated in Krugman's economic theories to understand that they need to raise taxes so that they can spend enough money on government schools so that they will be able to build cars. In addition, Krugman argued that Canada's socialist health care system was a contributing factor.

I pointed out some of the errors in Krugman's assertions, as did Krugman's self-appointed enemy number one, Donald "Krugman Truth Squad" Luskin.

And now this. Sweden spends even tax money on education than do Canada. Government spending on education as relative to GDP is in fact higher in Sweden than anywhere else in the world except for neighboring Denmark and significantly higher than in Canada (6.29% in Sweden versus 5.17% in Canada and 4.76% in the US). And of course, Sweden has the same kind of socialist health care system as Canada. How do Krugman then explain the fact that foreign investments have fallen to zero in Sweden?

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