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Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows

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  • Torfinn Harding
  • Beata S. Javorcik

Abstract

As red tape in host countries and information asymmetries constitute a significant obstacle to investment flows across international borders, an important policy question is: what can aspiring FDI destinations do to reduce such barriers? This study uses newly collected data on 124 countries to examine the effects of investment promotion on inflows of US FDI. We test whether sectors explicitly targeted by investment promotion agencies in their efforts to attract FDI receive more investment in the post-targeting period, relative to the pre-targeting period and non-targeted sectors. The results of our analysis are consistent with investment promotion leading to higher FDI flows to countries in which red tape and information asymmetries are likely to be severe. The data suggest that investment promotion works in developing countries but not in industrialized economies.

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File URL: http://hdl.handle.net/10.1111/j.1468-0297.2011.02454.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 557 (December)
Pages: 1445-1476

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:557:p:1445-1476
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Cited by:

  1. Kazunobu Hayakawa & Hyun-Hoon Lee & Donghyun Park, 2014. "Do Export Promotion Agencies Increase Exports?," The Developing Economies, Institute of Developing Economies, vol. 52(3), pages 241-261, 09.
  2. Oberhofer, Harald & Vincelette, Gallina A, 2013. "Determinants of job creation in eleven new EU member states : evidence from firm level data," Policy Research Working Paper Series 6533, The World Bank.
  3. Torfinn Harding & Beata S. Javorcik, 2013. "Investment Promotion and FDI Inflows: Quality Matters," CESifo Economic Studies, CESifo, vol. 59(2), pages 337-359, June.
  4. Rahman, Aminur, 2014. "Investment climate reforms and job creation in developing countries : what do we know and what should we do ?," Policy Research Working Paper Series 7025, The World Bank.
  5. World Bank, 2012. "EU11 Regular Economic Report : Coping with External Headwinds," World Bank Other Operational Studies 11896, The World Bank.
  6. Crespo Cuaresma, Jesus & Oberhofer, Harald & Vincelette, Gallina A., 2014. "Institutional Barriers and Job Creation in Central and Eastern Europe," Working Papers in Economics and Finance 2014-1, University of Salzburg.
  7. Curzi, Daniele & Raimondi, Valentina & Olper, Alessandro, 2013. "Quality Upgrading, Competition and Trade Policy: Evidence from the Agri-Food Sector," Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152386, International Agricultural Trade Research Consortium.
  8. Yuko Hashimoto & Konstantin Wacker, 2012. "The Role of Risk and Information for International Capital Flows; New Evidence from the SDDS," IMF Working Papers 12/242, International Monetary Fund.
  9. Ana S. Trbovich & Jana Subotić & Jasna Matić, 2013. "Foreign Direct Investment As Export Facilitator In Serbia’S Apparel Industry," Serbian Association of Economists Journal, SAE - Serbian Association of Economists, issue 5-6, pages 339-353, August.
  10. Cuaresma, Jesus Crespo & Oberhofer, Harald & Smits, Karlis & Vincelette, Gallina A, 2012. "Drivers of convergence in eleven eastern European countries," Policy Research Working Paper Series 6185, The World Bank.
  11. Wacker, Konstantin M., 2013. "On the measurement of foreign direct investment and its relationship to activities of multinational corporations," Working Paper Series 1614, European Central Bank.
  12. K. Lenaerts & B. Merlevede, 2014. "FDI Spillovers and Multinational Firm Heterogeneity," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/879, Ghent University, Faculty of Economics and Business Administration.
  13. Arita, Shawn & Tanaka, Kiyoyasu, 2013. "FDI and investment barriers in developing economies," IDE Discussion Papers 431, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  14. Theodore H. Moran, 2014. "Foreign Investment and Supply Chains in Emerging Markets: Recurring Problems and Demonstrated Solutions," Working Paper Series WP14-12, Peterson Institute for International Economics.
  15. Laura Gomez-Mera & Thomas Kenyon & Yotam Margalit & Jose Guilherme Reis & Gonzalo Varela, 2015. "New Voices in Investment : A Survey of Investors from Emerging Countries," World Bank Publications, The World Bank, number 20605, October.

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