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The role of public policy in closing foreign direct investment gaps: an empirical analysis

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  • C. Bellak

    ()

  • M. Leibrecht

    ()

  • R. Stehrer

    ()

Abstract

Using public policy instruments to attract Foreign Direct Investment (FDI) has become standard in most countries, irrespective of their level of development, geographical location or industrial structure. Against this background the paper analyses the suitability of various public policies to attract inward FDI stock based on a sample of 11 countries and 10 industries from the manufacturing sector over 10 years. For this aim we derive an empirical baseline model of the determinants of inward FDI stock. From this baseline model, FDI gaps - measured as the difference between the 'estimated actual' inward FDI stock and the 'potential' FDI stock which could be realized if a certain 'best practice policy' were carried out - are derived. The analysis focuses on business taxation, public research and development expenditures, the information and communication infrastructure endowment, labour costs as well as institutional and skill-related policies. The analysis inter alia reveals the share of each of these location factors in the total industry- and country-level FDI gap.
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Suggested Citation

  • C. Bellak & M. Leibrecht & R. Stehrer, 2010. "The role of public policy in closing foreign direct investment gaps: an empirical analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(1), pages 19-46, February.
  • Handle: RePEc:kap:empiri:v:37:y:2010:i:1:p:19-46
    DOI: 10.1007/s10663-009-9107-6
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christian Bellak & Rajneesh Narula, 2008. "EU enlargement and consequences for FDI assisted industrial development," Economics & Management Discussion Papers em-dp2008-69, Henley Business School, Reading University.
    2. repec:spr:soinre:v:133:y:2017:i:3:d:10.1007_s11205-016-1403-5 is not listed on IDEAS
    3. repec:krk:eberjl:v:4:y:2016:i:2:p:93-103 is not listed on IDEAS
    4. Groeneveld, Anouschka & Heijman, Wim, 2013. "Where The European Union Should Multiply Its Money: Stimulating Measures In The Economic Monetary Union," Economics of Agriculture, Institute of Agricultural Economics, vol. 60(4).
    5. Nikolaos Antonakakis & Gabriele Tondl, 2011. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging," FIW Working Paper series 076, FIW.
    6. POPOVICI Oana Cristina & CĂLIN Adrian Cantemir, 2015. "The Effects of Enhancing Competitiveness on FDI Inflows in CEE Countries," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 01, March.
    7. Václav Žďárek, 2009. "Moderní způsoby produkce a přímé zahraniční investice
      [Modern methods of production and foreign direct investment]
      ," Politická ekonomie, University of Economics, Prague, vol. 2009(4), pages 509-543.
    8. Gabor Hunya, 2014. "Regional Policy and FDI Location – an Overview of the Larger New EU Member States," wiiw Research Reports 393, The Vienna Institute for International Economic Studies, wiiw.

    More about this item

    Keywords

    Economic policy; Foreign direct investment; European Union; Industry-level study; Location decision; F21; H25; H71;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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