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Investment Promotion and FDI Inflows: Quality Matters

Author

Listed:
  • Torfinn Harding
  • Beata S. Javorcik

Abstract

Information asymmetries constitute a significant obstacle to capital flows across international borders, and in particular to flows of foreign direct investment (FDI) to emerging markets. Many governments aim to reduce information barriers by engaging in investment promotion activities. Despite potentially large benefits of FDI and popularity of investment promotion intermediaries (IPIs), relatively little is known about their effectiveness. This study uses data collected through the Global Investment Promotion Benchmarking (GIPB) exercise to examine whether higher quality of IPI services translates into higher FDI inflows. The analysis, based on information on 156 countries, suggests that countries with IPIs able to handle investor inquiries in a more professional manner and IPIs possessing higher quality Web sites tend to attract greater volume of FDI. These results are robust to using sector-level data and instrumental variable approach. (JEL codes: F21, F23, H11) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Torfinn Harding & Beata S. Javorcik, 2013. "Investment Promotion and FDI Inflows: Quality Matters," CESifo Economic Studies, CESifo Group, vol. 59(2), pages 337-359, June.
    • Handle: RePEc:oup:cesifo:v:59:y:2013:i:2:p:337-359
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifs029
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    Cited by:

    1. Jerónimo Carballo & Ignacio Marra de Artiñano & Christian Volpe Martincus, 2021. "Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence," CESifo Working Paper Series 9043, CESifo.
    2. Cote, Christine & Estrin, Saul & Shapiro, Daniel, 2020. "Expanding the international trade and investment policy agenda: the role of cities and services," LSE Research Online Documents on Economics 104003, London School of Economics and Political Science, LSE Library.
    3. Glitsch, Julian & Godart, Olivier N. & Görg, Holger & Mösle, Saskia & Steglich, Frauke, 2020. "Lagging behind? German Foreign Direct Investment in Africa," KCG Policy Papers 5, Kiel Centre for Globalization (KCG).
    4. Moran, Theodore H. & Görg, Holger & Seric, Adnan, 2016. "Quality FDI and Supply-Chains in Manufacturing: Overcoming Obstacles and Supporting Development," KCG Policy Papers 1, Kiel Centre for Globalization (KCG).
    5. Crescenzi, Riccardo & Di Cataldo, Marco & Giua, Mara, 2021. "FDI inflows in Europe: Does investment promotion work?," Journal of International Economics, Elsevier, vol. 132(C).
    6. 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.
    7. Steenbergen, Victor, 2023. "What Makes an Investment Promotion Agency Effective ? Findings from a Structural Gravity Model," Policy Research Working Paper Series 10276, The World Bank.
    8. Lay, Jann & Tafese, Tevin, 2020. "Promoting private investment to create jobs: A review of the evidence," PEGNet Policy Studies 02/2020, PEGNet - Poverty Reduction, Equity and Growth Network, Kiel Institute for the World Economy.
    9. Bin Ni & Yasuyuki Todo & Tomohiko Inui, 2017. "How Effective are Investment Promotion Agencies? Evidence from China," The Japanese Economic Review, Springer, vol. 68(2), pages 232-243, June.
    10. (ed.), 0. "Research Handbook on Economic Diplomacy," Books, Edward Elgar Publishing, number 16053, June.
    11. Mösle, Saskia & Steglich, Frauke, 2020. "Policy instruments for FDI promotion in Africa," PEGNet Policy Briefs 21/2020, PEGNet - Poverty Reduction, Equity and Growth Network, Kiel Institute for the World Economy.
    12. Oliver Godart & Holger Goerg & Aoife Hanley, 2020. "Harnessing the Benefits of FDI in African Countries," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(02), pages 32-37, July.
    13. Beata S. Javorcik, 2015. "Does FDI Bring Good Jobs to Host Countries?," The World Bank Research Observer, World Bank, vol. 30(1), pages 74-94.
    14. Maria Borga & Perla Ibarlucea Flores & Monika Sztajerowska, 2020. "Drivers of divestment decisions of multinational enterprises - A cross-country firm-level perspective," OECD Working Papers on International Investment 2019/03, OECD Publishing.
    15. Christine Côté & Saul Estrin & Daniel Shapiro, 0. "Expanding the international trade and investment policy agenda: The role of cities and services," Journal of International Business Policy, Palgrave Macmillan, vol. 0, pages 1-25.
    16. Muhammad Arshad Khan & Ayaz Ahmed, 2012. "Modelling Trade, Investment, Growth and Liberalisation: Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 187-208.
    17. Knoerich, Jan & Vitting, Simon, 2021. "The distinct contribution of investment promotion agencies’ branch offices in bringing Chinese multinationals to Europe," Journal of World Business, Elsevier, vol. 56(3).
    18. Amat Adarov & M. Ayhan Kose & Dana Vorisek, 2025. "Investment in Emerging and Developing Economies," CAMA Working Papers 2025-71, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    19. Christine Côté & Saul Estrin & Daniel Shapiro, 2020. "Expanding the international trade and investment policy agenda: The role of cities and services," Journal of International Business Policy, Palgrave Macmillan, vol. 3(3), pages 199-223, September.
    20. Mensah,Justice Tei & Traore,Nouhoum-000531164, 2022. "Infrastructure Quality and FDI Inflows : Evidence from the Arrival of High-Speed Internet in Africa," Policy Research Working Paper Series 9946, The World Bank.

    More about this item

    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
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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