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Does Inflation Targeting Matter for Attracting Foreign Direct Investment into Developing Countries?

  • Rene Tapsoba

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

This paper investigates the effect of Inflation Targeting (IT) on Foreign Direct Investment (FDI). Based on panel data of 53 developing countries over the period 1980-2007, this study is the first, to the best of the author's knowledge, to evaluate directly the effect of IT on FDI. Using a variety of propensity scores-matching methods which allow controlling for selfselection in policy adoption, it finds that the treatment effect of IT on FDI is positive, statistically significant and robust to a set of alternative specifications. In terms of policy recommendations, this finding therefore suggests that if well implemented, IT adoption can be a legitimate part of the policy toolkit available to policymakers in developing countries in their competition to attract more FDI.

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Paper provided by HAL in its series Working Papers with number halshs-00667203.

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Date of creation: 07 Feb 2012
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Handle: RePEc:hal:wpaper:halshs-00667203
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  17. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
  18. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
  19. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
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