Advanced Search
MyIDEAS: Login to save this paper or follow this series

What Drives FDI Policy Liberalization? An Empirical Investigation

Contents:

Author Info

  • Krishna Chaitanya Vadlamannati

    ()

  • Arusha Cooray

    ()

Abstract

Do countries compete for FDI by liberalizing their FDI policy regimes? Our measure of FDI policy liberalization is an event count of changes made by a country in a given year in the areas of approval procedures, sectoral restrictions, operational conditions, incentives, investment guarantees, foreign exchange, and corporate regulations to attract FDI. Using spatial econometric estimations on panel data for 148 countries during the 1992–2009 period, we find that favorable policy changes to the FDI regime in one country are positively correlated with FDI policy changes elsewhere (i.e., policy changes favorable to FDI from other countries, increase the likelihood of liberalizing FDI policy in the country in question). While low income countries compete among themselves for investment via the liberalization of FDI policy, competition is most fierce in those countries which are relatively more open to FDI. These results are robust to alternative weighting schemes, estimation methods, sample sizes, and controlling for the possibility of endogeneity.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/272012.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-27.

as in new window
Length: 36 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:een:camaaa:2012-27

Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Email:
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, Elsevier, vol. 40(3-4), pages 345-371, May.
  2. Niklas Potrafke, 2011. "Economic Freedom and Government Ideology Across the German States," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2011-41, Department of Economics, University of Konstanz.
  3. Seo-Young Cho & Axel Dreher & Eric Neumayer, 2011. "The Spread of Anti-Trafficking Policies - Evidence from a New Index," CESifo Working Paper Series 3376, CESifo Group Munich.
  4. Pandya, Sonal S., 2010. "Labor Markets and the Demand for Foreign Direct Investment," International Organization, Cambridge University Press, Cambridge University Press, vol. 64(03), pages 389-409, July.
  5. Hans Pitlik, 2007. "A race to liberalization? Diffusion of economic policy reform among OECD-economies," Public Choice, Springer, Springer, vol. 132(1), pages 159-178, July.
  6. A. Klemm & S. Van Parys, 2010. "Empirical Evidence on the Effects of Tax Incentives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 10/673, Ghent University, Faculty of Economics and Business Administration.
  7. Dutt, Pushan & Mitra, Devashish, 2006. "Labor versus capital in trade-policy: The role of ideology and inequality," Journal of International Economics, Elsevier, Elsevier, vol. 69(2), pages 310-320, July.
  8. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2002. "Do Countries Compete Over Corporate Tax Rates?," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 642, University of Warwick, Department of Economics.
  9. Jagdish N. Bhagwati, 2004. "In Defense of Globalization: It Has a Human Face," Rivista di Politica Economica, SIPI Spa, SIPI Spa, vol. 94(6), pages 9-20, November-.
  10. Martin Gassebner & Noel Gaston & Michael Lamla, 2007. "The Inverse Domino Effect: Are Economic Reforms Contagious?," Development Research Unit Working Paper Series, Monash University, Department of Economics 31-07, Monash University, Department of Economics.
  11. Raff, Horst & Srinivasan, Krishna, 1998. "Tax incentives for import-substituting foreign investment:: Does signaling play a role?," Journal of Public Economics, Elsevier, Elsevier, vol. 67(2), pages 167-193, February.
  12. Girma, Sourafel & Görg, Holger, 2006. "Evaluating the Foreign Ownership Wage Premium Using a Difference-in-Differences Matching Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5788, C.E.P.R. Discussion Papers.
  13. Ronald B. Davies and Johannes Voget, 2009. "Tax Competition in an Expanding European Union," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp276, IIIS.
  14. Newman, Robert J. & Sullivan, Dennis H., 1988. "Econometric analysis of business tax impacts on industrial location: What do we know, and how do we know it?," Journal of Urban Economics, Elsevier, vol. 23(2), pages 215-234, March.
  15. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0151, National Bureau of Economic Research, Inc.
  16. Ronald B. Davies & Krishna Chaitanya Vadlamannati, 2011. "A Race to the Bottom in Labour Standards? An Empirical Investigation," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp385, IIIS.
  17. Ronald B Davies & Hartmut Egger & Peter Egger, 2007. "Tax Competition for International Producers and the Mode of Foreign Market Entry," Working Papers, Oxford University Centre for Business Taxation 0711, Oxford University Centre for Business Taxation.
  18. Christian Bjørnskov & Niklas Potrafke, 2011. "Politics and privatization in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 19(2), pages 201-230, 04.
  19. Jo Jakobsen & Indra de Soysa, 2006. "Do Foreign Investors Punish Democracy? Theory and Empirics, 1984-2001," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 59(3), pages 383-410, 08.
  20. Haufler, Andreas & Wooton, Ian, 1997. "Tax Competition for Foreign Direct Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1583, C.E.P.R. Discussion Papers.
  21. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, Elsevier, vol. 42(1), pages 51-74, October.
  22. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 115-135, June.
  23. Azémar, Céline & Delios, Andrew, 2008. "Tax competition and FDI: The special case of developing countries," Journal of the Japanese and International Economies, Elsevier, vol. 22(1), pages 85-108, March.
  24. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 89-113.
  25. Markusen, James R. & Morey, Edward R. & Olewiler, Nancy, 1995. "Competition in regional environmental policies when plant locations are endogenous," Journal of Public Economics, Elsevier, Elsevier, vol. 56(1), pages 55-77, January.
  26. Madies, Thierry & Dethier, Jean-Jacques, 2010. "Fiscal competition in developing countries : a survey of the theoretical and empirical literature," Policy Research Working Paper Series, The World Bank 5311, The World Bank.
  27. Ronald B. Davies & Helen T. Naughton, 2003. "Cooperation in Environmental Policy: A Spatial Approach," University of Oregon Economics Department Working Papers, University of Oregon Economics Department 2006-18, University of Oregon Economics Department, revised 10 Jun 2003.
  28. Almeida, Rita K., 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute for the Study of Labor (IZA).
  29. Banga, Rashmi, 2006. "Do Investment Agreements Matter?," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 21, pages 40-63.
  30. Fredriksson, Per G. & Millimet, Daniel L., 2002. "Strategic Interaction and the Determination of Environmental Policy across U.S. States," Journal of Urban Economics, Elsevier, vol. 51(1), pages 101-122, January.
  31. Kristiina Huttunen, 2007. "The Effect of Foreign Acquisition on Employment and Wages: Evidence from Finnish Establishments," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 497-509, August.
  32. Morisset, Jacques & Lumenga Neso, Olivier, 2002. "Administrative barriers to foreign investment in developing countries," Policy Research Working Paper Series, The World Bank 2848, The World Bank.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ledyaeva, Svetlana & Karhunen, Päivi & Kosonen, Riitta, 2013. "Birds of a feather: Evidence on commonality of corruption and democracy in the origin and location of foreign investment in Russian regions," European Journal of Political Economy, Elsevier, Elsevier, vol. 32(C), pages 1-25.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2012-27. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.