Effect of corporate tax on sector specific foreign direct investment in Ghana

There has been intense competition among developed and developing countries to attract foreign direct investment (FDI) in recent years. This competition for FDI is due to the fact that foreign capital creates employment and economic growth, augments the productive capital of a country, promotes transfer of technology and skills to the host country, and hence helps alleviate poverty, among other benefits. The competition, among other things, has taken the form of reduction in the corporate tax rate. Over the past two decades there has been a downward trend in corporate tax rate and an upward trend in FDI inflow in Ghana. Empirical evidence point to the fact FDI inflow to Ghana is not influenced by lower corporate tax rates. What is more, no study has explored quantitatively the effect of corporate tax on the inflow of FDI to the various sectors of the economy of Ghana. This study, therefore, examined the effect of corporate tax reduction on sector-specific FDI inflow in Ghana. Specifically, the study investigated the effect of corporate tax on FDI inflow into the mining sector, manufacturing sector, and service sector of the economy. Using the Johansen cointegration technique, the study found that corporate tax influences FDI inflow in the all the sectors. The study recommends that government should maintain a low corporate tax rate to attract more FDI.