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Short-Run Strategies For Attracting Foreign Direct Investment

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  • Azemar, Celine
  • Desbordes, Rodolphe

Abstract

This paper empirically investigates the effectiveness and feasibility of two FDI policies, fiscal incentives and deregulation, aimed at improving the attractiveness of a country in the short run. Using disaggregated data on sales by US MNEs’ foreign affiliates in 43 developed and developing countries over the 1982-1994 period, results show that the provision of fiscal incentives or the deregulation of the labour market would exert a positive impact on total FDI. Given the drawbacks frequently associated with the use of incentive packages, economy-wide policies which ease firing procedures and reduce severance payments would certainly be the best policy option. This paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and provides some support to recent theoretical models of FDI by showing that third country effects and spatial interdependence influence respectively the location of export-platform FDI and vertical FDI.

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Bibliographic Info

Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2009-27.

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Date of creation: 2009
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Handle: RePEc:edn:sirdps:109

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Keywords: Foreign direct investment; fiscal incentives; regulations; market potential; spatial interdependence;

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Cited by:
  1. Niklas Potrafke, 2013. "Globalisierung und Arbeitsmarktinstitutionen," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 66(04), pages 32-35, 03.
  2. Martin Falk, 2012. "Determinants of Greenfield Investment in Knowledge Intensive Business Services," FIW Research Reports series IV-002, FIW.
  3. Antonakakis, Nikolaos & Tondl, Gabriele, 2012. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian model averaging," Discussion Papers 1/12, Europa-Kolleg Hamburg, Institute for European Integration.
  4. William W. Olney, 2010. "A Race to the Bottom? Employment Protection and Foreign Direct Investment," Department of Economics Working Papers 2011-02, Department of Economics, Williams College, revised Jan 2012.
  5. repec:wsr:ecbook:2010:i:iv-002 is not listed on IDEAS
  6. Potrafke, Niklas, 2013. "Globalization and labor market institutions: International empirical evidence," Munich Reprints in Economics 19288, University of Munich, Department of Economics.

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