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Does Investment Promotion Work?

Author

Listed:
  • Charlton Andrew

    (London School of Economics)

  • Davis Nicholas

    (World Economic Forum)

Abstract

The large empirical literature on the relationship between Foreign Direct Investment (FDI) and economic growth has produced mixed results. Despite the ambiguous evidence on the benefits of FDI, investment promotion has become an active area of policy and a growing number of nations are offering services and incentives to attract investment by multinational firms. Rather than assessing whether the costs of investment promotion are justified by the potential benefits of FDI, this paper asks a prior question which is relevant to the policy debate. We investigate whether national investment promotion activities succeed in increasing the volume of inward investment or whether this expenditure merely subsidises investments which would have occurred in its absence. We use a widespread but under acknowledged feature of investment promotion practice to test the effectiveness of investment promotion at the industry level. We find that a positive effect of investment promotion on FDI inflows is robust across various empirical specifications.

Suggested Citation

  • Charlton Andrew & Davis Nicholas, 2007. "Does Investment Promotion Work?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-21, August.
    • Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:42
    DOI: 10.2202/1935-1682.1743
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    Citations

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    Cited by:

    1. Jerónimo Carballo & Ignacio Marra de Artiñano & Christian Volpe Martincus, 2021. "Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence," CESifo Working Paper Series 9043, CESifo.
    2. Nicolas Papadopoulos & Yara Ibrahim & Alessandro De Nisco & Maria Rosaria Napolitano, 2018. "The Role of Country Branding in Attracting Foreign Investment: Country Characteristics and Country Image," MERCATI & COMPETITIVIT?, FrancoAngeli Editore, vol. 2018(2), pages 85-108.
    3. Bin Ni & Yasuyuki Todo & Tomohiko Inui, 2017. "How Effective are Investment Promotion Agencies? Evidence from China," The Japanese Economic Review, Japanese Economic Association, vol. 68(2), pages 232-243, June.
    4. Hayakawa, Kazunobu & Lee, Hyun-Hoon & Park, Donghyun, 2010. "Investment promotion agencies: do they work?," IDE Discussion Papers 272, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    5. Kazunobu Hayakawa & Hyun-Hoon Lee & Donghyun Park, 2014. "Are Investment Promotion Agencies Effective in Promoting Outward Foreign Direct Investment? The Cases of Japan and Korea," Asian Economic Journal, East Asian Economic Association, vol. 28(2), pages 111-138, June.
    6. Crescenzi, Riccardo & Di Cataldo, Marco & Giua, Mara, 2021. "FDI inflows in Europe: Does investment promotion work?," Journal of International Economics, Elsevier, vol. 132(C).
    7. de Jong, Gjalt & Phan, T. Binh & van Ees, Hans, 2011. "Does the meta-environment determine firm performance? Theory and evidence from European multinational enterprises," International Business Review, Elsevier, vol. 20(4), pages 454-465, August.
    8. Mitsuo Inada, 2022. "Promotion or liberalization: The effect of targeted investment policies on foreign direct investment inflows," Pacific Economic Review, Wiley Blackwell, vol. 27(5), pages 489-505, December.
    9. Peter A.G. van Bergeijk, 2009. "Economic Diplomacy and the Geography of International Trade," Books, Edward Elgar Publishing, number 13518.
    10. Wu, Tommy T., 2015. "Firm heterogeneity, trade, multinationals, and growth: A quantitative evaluation," Journal of International Economics, Elsevier, vol. 97(2), pages 359-375.
    11. Kazunobu Hayakawa & Hyun-Hoon Lee & Donghyun Park, 2014. "Do Export Promotion Agencies Increase Exports?," The Developing Economies, Institute of Developing Economies, vol. 52(3), pages 241-261, September.
    12. INADA Mitsuo, 2019. "Promotion or Liberalization: The Effect of Targeted Investment Policies on FDI Inflows," Discussion papers 19071, Research Institute of Economy, Trade and Industry (RIETI).
    13. Beata Javorcik & Mariana Spatareanu, 2021. "Can Industrial Policy Buy Ideas? Investment Promotion and Innovation," Working Papers Rutgers University, Newark 2021-002, Department of Economics, Rutgers University, Newark.
    14. Knoerich, Jan & Vitting, Simon, 2021. "The distinct contribution of investment promotion agencies’ branch offices in bringing Chinese multinationals to Europe," Journal of World Business, Elsevier, vol. 56(3).
    15. Jakša Puljiz & Marina Funduk & Ivana Biondić, 2024. "Revitalizing from Ashes: Economic Development and Business Resilience in the City of Vukovar," Economies, MDPI, vol. 12(2), pages 1-23, February.

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