IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2014-015.html
   My bibliography  Save this paper

The Quest for Non-Resource-Based FDI: Do Taxes Matter?

Author

Listed:
  • Mr. Tidiane Kinda

Abstract

Using manufacturing and services firm-level data for 30 sub-Saharan African (SSA) countries, this paper shows that taxation is not a significant driver for the location of foreign firms in SSA, while other investment climate factors, such as infrastructure, human capital, and insitutions, are. By analyzing disaggregate FDI data, the paper establishes that, while there is considerable contrast in behavior between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets), taxation is not a key determinant for either type of FDI. Horizontal FDI is attracted to areas with higher trade regulations, highlighting interest in protected markets. Furthermore, horizontal FDI is affected more by financing and human capital constraints, and less by infrastructure and institutional constraints, than is vertical FDI.

Suggested Citation

  • Mr. Tidiane Kinda, 2014. "The Quest for Non-Resource-Based FDI: Do Taxes Matter?," IMF Working Papers 2014/015, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/015
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=41281
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2006. "Investment climate and international integration," World Development, Elsevier, vol. 34(9), pages 1498-1516, September.
    2. Tidiane Kinda & Patrick Plane & Marie‐Ange Véganzonès‐Varoudakis, 2011. "Firm Productivity And Investment Climate In Developing Countries: How Does Middle East And North Africa Manufacturing Perform?," The Developing Economies, Institute of Developing Economies, vol. 49(4), pages 429-462, December.
    3. Carmen Pagés-Serra & Reyes Aterido & Mary Hallward-Driemeier, 2007. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations Across Firms," Research Department Publications 4559, Inter-American Development Bank, Research Department.
    4. Tidiane Kinda, 2012. "Foreign ownership, sales to multinationals and firm efficiency: the case of Brazil, Morocco, Pakistan, South Africa and Vietnam," Applied Economics Letters, Taylor & Francis Journals, vol. 19(6), pages 551-555, April.
    5. Alexander Klemm & Stefan Parys, 2012. "Empirical evidence on the effects of tax incentives," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(3), pages 393-423, June.
    6. Honorati, Maddalena & Mengistae, Taye, 2007. "Corruption, business environment, and small business fixed investment in India," Policy Research Working Paper Series 4356, The World Bank.
    7. Urata, Shujiro & Kawai, Hiroki, 2000. "The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, vol. 15(2), pages 79-103, September.
    8. Ruud A. de Mooij & Sjef Ederveen, 2008. "Corporate tax elasticities: a reader's guide to empirical findings," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 680-697, winter.
    9. Shujiro Urata & Hiroki Kawai, 2000. "The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-sized Enterprises (in Japanese)," Economic Analysis, Economic and Social Research Institute (ESRI), vol. 158, pages 3-21, January.
    10. Du, Julan & Lu, Yi & Tao, Zhigang, 2008. "Economic institutions and FDI location choice: Evidence from US multinationals in China," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 412-429, September.
    11. Mario Mansour & Mr. Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization," IMF Working Papers 2009/157, International Monetary Fund.
    12. Ms. Jingqing Chai & Rishi Goyal, 2008. "Tax Concessions and Foreign Direct Investment in the Eastern Caribbean Currency Union," IMF Working Papers 2008/257, International Monetary Fund.
    13. Kinda, Tidiane, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," World Development, Elsevier, vol. 38(4), pages 498-513, April.
    14. Beata K. Smarzynska & Shang-Jin Wei, 2000. "Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence," NBER Working Papers 7969, National Bureau of Economic Research, Inc.
    15. Liu, Zhiqiang, 2008. "Foreign direct investment and technology spillovers: Theory and evidence," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 176-193, February.
    16. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    17. Carmen Pagés-Serra & Reyes Aterido & Mary Hallward-Driemeier, 2007. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations Across Firms," Research Department Publications 4559, Inter-American Development Bank, Research Department.
    18. Zee, Howell H. & Stotsky, Janet G. & Ley, Eduardo, 2002. "Tax Incentives for Business Investment: A Primer for Policy Makers in Developing Countries," World Development, Elsevier, vol. 30(9), pages 1497-1516, September.
    19. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
    20. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, August.
    21. Honorati, Maddalena & Mengistae, Taye, 2007. "Corruption, the business environment, and small business growth in India," Policy Research Working Paper Series 4338, The World Bank.
    22. Lall, Somik V. & Mengistae, Taye, 2005. "The impact of business environment and economic geography on plant-level productivity : an analysis of Indian industry," Policy Research Working Paper Series 3664, The World Bank.
    23. Gelb, Alan & Ramachandran, Vijaya & Shah, Manju Kedia & Turner, Ginger, 2007. "What matters to African firms ? the relevance of perceptions data," Policy Research Working Paper Series 4446, The World Bank.
    24. S. Van Parys & S. James, 2010. "The Effectiveness of Tax Incentives in Attracting FDI: Evidence from the Tourism Sector in the Caribbean," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/675, Ghent University, Faculty of Economics and Business Administration.
    25. Mohamed Chaffai & Tidiane Kinda & Patrick Plane, 2012. "Textile Manufacturing in Eight Developing Countries: Does Business Environment Matter for Firm Technical Efficiency?," Journal of Development Studies, Taylor & Francis Journals, vol. 48(10), pages 1470-1488, October.
    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


    Cited by:

    1. Niaz Morshed & Mohammad Razib Hossain, 2022. "Causality analysis of the determinants of FDI in Bangladesh: fresh evidence from VAR, VECM and Granger causality approach," SN Business & Economics, Springer, vol. 2(7), pages 1-28, July.
    2. Alvaro Cuervo-Cazurra & Bernardo Silva-Rêgo & Ariane Figueira, 2022. "Financial and fiscal incentives and inward foreign direct investment: When quality institutions substitute incentives," Journal of International Business Policy, Palgrave Macmillan, vol. 5(4), pages 417-443, December.
    3. Marco Carreras & Chandu Dachapalli & Giulia Mascagni, 2017. "Effective corporate tax burden and firm size in South Africa: A firm-level analysis," WIDER Working Paper Series wp-2017-162, World Institute for Development Economic Research (UNU-WIDER).
    4. Mascagni, Giulia & Molla, Kiflu & Mengistu, Andualem, 2021. "Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data," Working Papers 16548, Institute of Development Studies, International Centre for Tax and Development.
    5. Andualem T Mengistu & Kiflu G Molla & Giulia Mascagni, 2022. "Trade Tax Evasion and the Tax Rate: Evidence from Transaction-level Trade Data," Journal of African Economies, Centre for the Study of African Economies, vol. 31(1), pages 94-122.
    6. Kalle Hirvonen & Giulia Mascagni & Keetie Roelen, 2018. "Linking taxation and social protection: Evidence on redistribution and poverty reduction in Ethiopia," International Social Security Review, John Wiley & Sons, vol. 71(1), pages 3-24, January.
    7. Alexander Pakhalov, 2020. "Import of Institutions as an Approach to Investment Climate Reform: Evidence from Russia," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 6(2), pages 127-144, April.
    8. Seydou Coulibaly & Abdramane Camara, 2021. "Working Paper 354 - Taxation, Foreign Direct Investment and Spillover Effects in the Mining Sector," Working Paper Series 2480, African Development Bank.
    9. Kalle Hirvonen & Giulia Mascagni & Keetie Roelen, 2018. "Linking taxation and social protection: Evidence on redistribution and poverty reduction in Ethiopia," International Social Security Review, John Wiley & Sons, vol. 71(1), pages 3-24, January.
    10. Moore, Mick, 2020. "What is Wrong with African Tax Administration?," Working Papers 15661, Institute of Development Studies, International Centre for Tax and Development.
    11. Hania Kronfol & Victor Steenbergen, 2020. "Evaluating the Costs and Benefits of Corporate Tax Incentives," World Bank Publications - Reports 33433, The World Bank Group.
    12. International Monetary Fund, 2014. "Republic of Congo: Selected Issues," IMF Staff Country Reports 2014/273, International Monetary Fund.
    13. Marco Carreras & Purnachandar Dachapalli & Giulia Mascagni, 2017. "Effective corporate tax burden and firm size in South Africa: A firm-level analysis," WIDER Working Paper Series 162, World Institute for Development Economic Research (UNU-WIDER).
    14. Mascagni, Giulia & Moore, Mick & McCluskey, Rhiannon, 2014. "Tax Revenue Mobilistation In Developing Countries: Issues and Challenges," Working Papers 3948, Institute of Development Studies, International Centre for Tax and Development.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kinda, Tidiane, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," World Development, Elsevier, vol. 38(4), pages 498-513, April.
    2. Sarker, Bibhuti & Serieux, John, 2023. "Multilevel determinants of FDI: A regional comparative analysis," Economic Systems, Elsevier, vol. 47(3).
    3. Samyukta Bhupatiraju, 2020. "Multi-level Determinants of Inward FDI Ownership," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(2), pages 327-358, June.
    4. Tidiane Kinda, 2012. "Foreign ownership, sales to multinationals and firm efficiency: the case of Brazil, Morocco, Pakistan, South Africa and Vietnam," Applied Economics Letters, Taylor & Francis Journals, vol. 19(6), pages 551-555, April.
    5. Nadine Levratto & Clarisse Nguedam Ntouko & Maarouf Ramadan, 2017. "Institutions and firms’ internationalization: an empirical analysis on three Middle East countries," EconomiX Working Papers 2017-37, University of Paris Nanterre, EconomiX.
    6. Segundo Camino‐Mogro, 2023. "Tax incentives, private investment and employment: Evidence from an Ecuadorian reform," Journal of International Development, John Wiley & Sons, Ltd., vol. 35(7), pages 2129-2156, October.
    7. Wasseem Mina & Louis Jaeck, 2015. "Labor Market Flexibility and FDI Flows: Evidence from Oil-Rich GCC and Middle Income Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1501, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. T. Dinh, Hinh & Mavridis, Dimitris A. & Nguyen, Hoa B., 2010. "The binding constraint on firms'growth in developing countries," Policy Research Working Paper Series 5485, The World Bank.
    9. Garsous, Grégoire & Corderi, David & Velasco, Mercedes, 2015. "Tax Incentives and Job Creation in the Tourism Industry of Brazil," IDB Publications (Working Papers) 7324, Inter-American Development Bank.
    10. Diagne, Youssoupha S, 2013. "Impact of business environment on investment and output of manufacturing firms in Senegal," MPRA Paper 54227, University Library of Munich, Germany.
    11. Kui Ming Tiong & Ming Yu Cheng & Chee Keong Choong, 2021. "Investment climate and foreign direct investment in Malaysia: firm‐level evidence," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(1), pages 108-119, May.
    12. Nadine Levratto & Clarisse Nguedam Ntouko & Maarouf Ramadan, 2017. "Institutions and firms' internationalization: an empirical analysis on three Middle East countries [Institutions et internationalisation des entreprises: une analyse empirique sur trois pays du moy," Working Papers hal-04141631, HAL.
    13. Paunov, Caroline & Rollo, Valentina, 2016. "Has the Internet Fostered Inclusive Innovation in the Developing World?," World Development, Elsevier, vol. 78(C), pages 587-609.
    14. Judy S. Yang, 2017. "The governance environment and innovative SMEs," Small Business Economics, Springer, vol. 48(3), pages 525-541, March.
    15. Wasseem Mina, 2018. "Labor Market Policies and FDI Flows to GCC Countries," Working Papers 1201, Economic Research Forum, revised 27 May 2018.
    16. Mina, Wasseem, 2020. "Do GCC market-oriented labor policies encourage inward FDI flows?," Research in International Business and Finance, Elsevier, vol. 51(C).
    17. Mengyin Li & Phillip H. Phan & Xian Sun, 2021. "Business Friendliness: A Double-Edged Sword," Sustainability, MDPI, vol. 13(4), pages 1-22, February.
    18. Munongo, Simon & Akanbi, Olusegun Ayo & Robinson, Zurika, 2017. "Do tax incentives matter for investment? A literature review," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(2).
    19. Jean-Louis COMBES & Patrick PLANE & Tidiane KINDA & Rasmané OUEDRAOGO, 2017. "Does It Pour When it Rains? Capital Flows and Economic Growth in Developing Countries," Working Papers P157, FERDI.
    20. Davies, RB & Lamla, MJ & Schiffbauer, M, 2016. "Learning or Leaning: Persistent and Transitory Spillovers from FDI," Essex Finance Centre Working Papers 15772, University of Essex, Essex Business School.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2014/015. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.