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

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Author Info
Torfinn Harding and Beata Smarzynska Javorcik () (Statistics Norway)

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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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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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Related research
Keywords: foreign direct investment investment promotion investment incentives

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O1 - Economic Development, Technological Change, and Growth - - Economic Development

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August. [Downloadable!] (restricted)
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  3. Cletus C. Coughlin & Eran Segev, 2000. "Location Determinants of New Foreign-Owned Manufacturing Plants," Journal of Regional Science, Blackwell Publishing, vol. 40(2), pages 323-351. [Downloadable!] (restricted)
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  4. Görg, Holger & Henry, Michael & Strobl, Eric, 2007. "Grant Support and Exporting Activity," CEPR Discussion Papers 6054, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, Oxford University Press, vol. 19(2), pages 171-197.
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  6. Andrew Charlton, 2003. "Incentive Bidding for Mobile Investment: Economic Consequences and Potential Responses," OECD Development Centre Working Papers 203, OECD Development Centre. [Downloadable!]
  7. 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. [Downloadable!]
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  8. Barry Eichengreen & Hui Tong, 2005. "Is China's FDI Coming at the Expense of Other Countries?," NBER Working Papers 11335, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. Smarzynska, Beata K., 2002. "The composition of foreign direct investment and protection of intellectual property rights : evidence from transition economies," Policy Research Working Paper Series 2786, The World Bank. [Downloadable!]
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  11. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," NBER Working Papers 10378, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Robert E. Lipsey, 2007. "Defining and Measuring the Location of FDI Output," NBER Working Papers 12996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Beata Smarzynska Javorcik & Mariana Spatareanu, 2003. "To share or not to share : does local participation matter for spillovers from foreign direct investment?," Policy Research Working Paper Series 3118, The World Bank. [Downloadable!]
    Other versions:
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