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Short-run strategies for attracting Foreign Direct Investment

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  • Céline Azémar
  • Rodolphe Desbordes

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 Business School - Economics, University of Glasgow in its series Working Papers with number 2009_24.

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Date of creation: Jun 2009
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Handle: RePEc:gla:glaewp:2009_24

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

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References

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Cited by:
  1. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging," FIW Working Paper series 076, FIW.
  2. William W. Olney, 2010. "A Race to the Bottom? Employment Protection and Foreign Direct Investment," Center for Development Economics 2011-02, Department of Economics, Williams College, revised May 2011.
  3. Potrafke, Niklas, 2013. "Globalization and labor market institutions: International empirical evidence," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 829-842.
  4. Martin Falk, 2012. "Determinants of Greenfield Investment in Knowledge Intensive Business Services," FIW Research Reports series IV-002, FIW.
  5. 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.
  6. repec:wsr:ecbook:2010:i:iv-002 is not listed on IDEAS

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