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FDI and investment barriers in developing economies

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  • Arita, Shawn
  • Tanaka, Kiyoyasu

Abstract

Does investment liberalization in developing economies affect FDI decisions differently across individual firms? To address this question, we simulate the response of individual firms to reductions in investment costs across developing economies. We explore two policy experiments: elimination of setup-procedure requirements for foreign investors and a reduction in corporate tax rates on foreign-owned multinationals. We find that a relaxing of discriminatory foreign investment procedures induces middle productive firms to increase their entry and production in developing economies substantially, but the most productive firms to expand moderately. Multinationals expand their entry and production in developing economies more substantially following a decline in entry barriers than following a decrease in corporate tax rates.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/1283/1/ARRIDE_Discussion_No.431_arita.pdf
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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 431.

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Date of creation: Nov 2013
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Publication status: Published in IDE Discussion Paper. No. 431. 2013. 11
Handle: RePEc:jet:dpaper:dpaper431

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Keywords: Developing countries; Foreign investments; International business enterprises; FDI; Firm heterogeneity; Investment liberalization;

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