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Short-run strategies for attracting Foreign Direct Investment

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Author Info
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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Paper provided by Department of 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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Related research
Keywords: Foreign direct investment; fiscal incentives; regulations; market potential; spatial interdependence.;

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