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Productivity and Taxes as Drivers of FDI

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Author Info
Razin, Assaf
Sadka, Efraim

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Abstract

We study the role of productivity and corporate taxation as driving forces of FDI among OECD countries in the presence of threshold barriers, which generate two margins for FDI decisions. Some simulations, based on the estimation results, suggest that there are marked differences in the sensitivity of FDI flows from the U.S. to productivity and taxes in OECD countries. Data on FDI flows are drawn from the International Direct Investment dataset (Source OECD), covering the bilateral FDI flows among 18 OECD countries over the period 1987 to 2003.The sensitivity of these flows to productivity in the U.K. is positive and high, relative to other EU countries and Japan. Similarly, the sensitivity of these flows to taxes in the U.K is negative and high, relative to other EU countries and Japan.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6299.

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Date of creation: May 2007
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Handle: RePEc:cpr:ceprdp:6299

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Related research
Keywords: corporate taxation; Foreign direct investment; productivity; selection and flow equations;

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Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
F3 - International Economics - - International Finance
H2 - Public Economics - - Taxation, Subsidies, and Revenue

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