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Investment Promotion and FDI Inflows: Quality Matters

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  • Torfinn Harding
  • Beata Javorcik

Abstract

Information asymmetries constitute a significant obstacle to capital flows across international borders, and in particular to flows of foreign investment (FDI) to emerging markets.� Many governments aim to reduce information barriers by emerging in investment promotion activities.� Despite potentially large benefits of FDI and popularity of investment promotion intermediaries (IPIs), relatively little is known about their effectiveness.� This study uses data collected through the Global Investment Promotion Benchmarking (GIPB) exercise to examine whether higher quality of IPI services translates into higher FDI inflows.� The analysis, based on information on 156 countries, suggests that countries with IPIs able to handle investor inquiries in a more professional manner and IPIs possessing higher quality Web sites tend to attract greater volume of FDI.� These results are robust to using sector-level data and instrumental variable approach.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 612.

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Date of creation: 01 Jun 2012
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Handle: RePEc:oxf:wpaper:612

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Keywords: Foreign direct investment; Investment promotion; Emerging markets; Information asymmetries; Red tape; Performance of public institutions;

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  1. R. Gaston Gelos & Shang-Jin Wei, 2005. "Transparency and International Portfolio Holdings," Journal of Finance, American Finance Association, vol. 60(6), pages 2987-3020, December.
  2. Gustavo J. Bobonis & Howard J. Shatz, 2007. "Agglomeration, Adjustment, and State Policies in the Location of Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 30-43, February.
  3. Beata Javorcik & Mariana Spatareanu, 2006. "To Share or Not To Share: Does Local Participation Matter for Spillovers from Foreign Direct Investment?," Working Papers Rutgers University, Newark 2006-001, Department of Economics, Rutgers University, Newark.
  4. Beata S. Javorcik & Mariana Spatareanu, 2009. "Tough Love: Do Czech Suppliers Learn from Their Relationships with Multinationals?," LICOS Discussion Papers 24909, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  5. Torfinn Harding & Beata S. Javorcik, 2011. "Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows," Economic Journal, Royal Economic Society, vol. 121(557), pages 1445-1476, December.
  6. Javorcik, Beata S. & Spatareanu, Mariana, 2011. "Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors," Journal of Development Economics, Elsevier, vol. 96(1), pages 126-138, September.
  7. Bernard Hoekman & Beata Smarzynska Javorcik, 2006. "Global Integration and Technology Transfer," World Bank Publications, The World Bank, number 6962, October.
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