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Determinants of FDI inflows into the Baltic countries: Empirical evidence from a gravity model

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Author Info

  • Svetlana Raudonen

    ()
    (Tallinn School of Economics and Business Administration of Tallinn University of Technology)

  • Andreas Freytag

    ()
    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

Abstract

The article analyzes FDI inflows into Baltic countries using a gravity approach. The results of the empirical estimation allow us to explain how difference in corporate taxation between countries, geographical and cultural distance, institutions such as regulations and the size of the economy as well as its economic development affect FDI inflows into the Baltic countries. The influence of corporate taxation on FDI flows, expressed as corporate tax rate differences between investor and host countries is statistically significant. Larger geographical distance between the countries reduces FDI flows, and institutional variables such as the economic freedom index have significant impact and affect positively FDI into the Baltics. Finally, the size of economy, measured by GDP, impacts positively the FDI flows into Baltic countries.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-060.

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Date of creation: 02 Nov 2012
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Publication status: Published as "Determinants of FDI Inflows into the Baltic Countries: Empirical Evidence from a Gravity Model", in: Journal of Business and Economics 4/2 (2013), 180-194.
Handle: RePEc:jrp:jrpwrp:2012-060

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Keywords: gravity model; foreign direct investments; corporate tax; Baltic countries;

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  1. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2008. "Bilateral Effective Tax Rates and Foreign Direct Investment," Working Papers 0802, Oxford University Centre for Business Taxation.
  2. Agnès Bénassy-Quéré & Lionel Fontagné & Amina Lahrèche-Révil, 2005. "How Does FDI React to Corporate Taxation?," International Tax and Public Finance, Springer, vol. 12(5), pages 583-603, September.
  3. European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
  4. European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
  5. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
  6. Christian Bellak & Markus Leibrecht, 2009. "Do low corporate income tax rates attract FDI? - Evidence from Central- and East European countries," Applied Economics, Taylor & Francis Journals, vol. 41(21), pages 2691-2703.
  7. Swenson, Deborah L., 1994. "The impact of U.S. tax reform on foreign direct investment in the United States," Journal of Public Economics, Elsevier, vol. 54(2), pages 243-266, June.
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Cited by:
  1. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.

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