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Developing economies and international investors. Do investment promotion agencies bring them together?

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  • Torfinn Harding
  • Beata Smarzynska Javorcik

    ()
    (Statistics Norway)

Abstract

Many countries spend significant resources on investment promotion agencies (IPAs) in the hope of attracting inflows of foreign direct investment (FDI). Despite the importance of this question for public policy choices, little is known about the effectiveness of investment promotion efforts. This study uses newly collected data on national IPAs in 109 countries to examine the effects of investment promotion on FDI inflows. The empirical analysis follows two approaches. First, we test whether sectors explicitly targeted by IPAs receive more FDI in the post-targeting period relative to the pre-targeting period and non-targeted sectors. Second, we examine whether the existence of an IPA is correlated with higher FDI inflows. Results from both approaches point to the same conclusion. Investment promotion efforts appear to increase FDI inflows to developing countries. Moreover, agency characteristics, such as its legal status and reporting structure, affect the effectiveness of investment promotion. There is also evidence of FDI diversion due to investment incentives offered by other countries in the same geographic region.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 513.

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Date of creation: Sep 2007
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Handle: RePEc:ssb:dispap:513

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Keywords: foreign direct investment; investment promotion; investment incentives;

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References

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  1. Eichengreen, Barry & Tong, Hui, 2007. "Is China's FDI coming at the expense of other countries?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 153-172, June.
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  9. 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.
  10. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 229-64, May.
  11. Lederman, Daniel & Olarreaga, Marcelo & Payton, Lucy, 2006. "Export promotion agencies : what works and what doesn't," Policy Research Working Paper Series 4044, The World Bank.
  12. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc.
  13. 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.
  14. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," Working Papers and Research 0903, Marquette University, Center for Global and Economic Studies and Department of Economics.
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Citations

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Cited by:
  1. Magdolna Sass, 2010. "International Fragmentation of Tradable Business Services: the Case of Hungary," IEHAS Discussion Papers 1024, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Spatareanu, Mariana & Javorcik, Beata S., 2008. "Liquidity constraints and linkages with multinationals," HWWI Research Papers 2-14, Hamburg Institute of International Economics (HWWI).
  3. Laura Alfaro & Andrew Charlton, 2007. "Growth and the quality of foreign direct investment: is all FDI equal?," LSE Research Online Documents on Economics 19666, London School of Economics and Political Science, LSE Library.
  4. José Guimón* & Sergey Filippov, 2012. "Competing for High-quality FDI: Management Challenges for Investment Promotion Agencies," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 4(2), pages 25-44, July.
  5. Dalila NICET- CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GREThA 2008-22, Groupe de Recherche en Economie Théorique et Appliquée.
  6. Harding, Torfinn & Smarzynska-Javorcik, Beata, 2009. "A Touch of Sophistication: FDI and Unit Values of Exports," CEPR Discussion Papers 7596, C.E.P.R. Discussion Papers.
  7. Alaya MAROUANE (Université of Tunis) & Dalila NICET-CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GREThA 2008-27, Groupe de Recherche en Economie Théorique et Appliquée.
  8. Brenton, Paul & Newfarmer, Richard & Walkenhorst, Peter, 2009. "Avenues for Export Diversification: Issues for Low-Income Countries," MPRA Paper 22758, University Library of Munich, Germany.

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