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The relationship between MNE tax haven use and FDI into developing economies characterized by capital flight

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  • Ali Ahmed
  • Chris Jones
  • Yama Temouri

Abstract

The use of tax havens by multinationals is a pervasive activity in international business. However, we know little about the complementary relationship between tax haven use and foreign direct investment (FDI) in the developing world. Drawing on internalization theory, we develop a conceptual framework that explores this relationship and allows us to contribute to the literature on the determinants of tax haven use by developed-country multinationals. Using a large, firm-level data set, we test the model and find a strong positive association between tax haven use and FDI into countries characterized by low economic development and extreme levels of capital flight. This paper contributes to the literature by adding an important dimension to our understanding of the motives for which MNEs invest in tax havens and has important policy implications at both the domestic and the international level.

Suggested Citation

  • Ali Ahmed & Chris Jones & Yama Temouri, . "The relationship between MNE tax haven use and FDI into developing economies characterized by capital flight," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    • Handle: RePEc:unc:tncjou:40
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    Cited by:

    1. Zagler, Martin, 2023. "Foreign direct investment, legal uncertainty and corporate income taxation," International Economics, Elsevier, vol. 173(C), pages 19-28.
    2. Swati Verma, . "Intrafirm trade and tax haven linkages: Evidence from Indian manufacturing," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    3. Driffield, Nigel & Jones, Chris & Kim, Jae-Yeon & Temouri, Yama, 2021. "FDI motives and the use of tax havens: Evidence from South Korea," Journal of Business Research, Elsevier, vol. 135(C), pages 644-662.
    4. Claudia Trentini & Joao de Camargo Mainente & Amelia Santos-Paulino, . "The evolution of digital MNEs: an empirical note," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    5. Jones, Chris & Temouri, Yama & Kirollos, Karim & Du, Jun, 2023. "Tax havens and emerging market multinationals: The role of property rights protection and economic freedom," Journal of Business Research, Elsevier, vol. 155(PB).

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