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The Quest for Non-Resource-Based FDI: Do Taxes Matter?

  • Tidiane Kinda

Using manufacturing and services firm-level data for 30 sub-Saharan African (SSA) countries, this paper shows that taxation is not a significant driver for the location of foreign firms in SSA, while other investment climate factors, such as infrastructure, human capital, and insitutions, are. By analyzing disaggregate FDI data, the paper establishes that, while there is considerable contrast in behavior between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets), taxation is not a key determinant for either type of FDI. Horizontal FDI is attracted to areas with higher trade regulations, highlighting interest in protected markets. Furthermore, horizontal FDI is affected more by financing and human capital constraints, and less by infrastructure and institutional constraints, than is vertical FDI.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 14/15.

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Length: 24
Date of creation: 27 Jan 2014
Date of revision:
Handle: RePEc:imf:imfwpa:14/15
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  1. Tidiane Kinda, 2012. "Foreign ownership, sales to multinationals and firm efficiency: the case of Brazil, Morocco, Pakistan, South Africa and Vietnam," Applied Economics Letters, Taylor & Francis Journals, vol. 19(6), pages 551-555, April.
  2. Du, Julan & Lu, Yi & Tao, Zhigang, 2008. "Economic institutions and FDI location choice: Evidence from US multinationals in China," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 412-429, September.
  3. Reyes Aterido & Mary Hallward-Driemeier & Carmen Pagés-Serra, 2007. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations across Firms," IDB Publications (Working Papers) 43618, Inter-American Development Bank.
  4. Tidiane Kinda, 2010. "Investment Climate and FDI in Developing Countries: Firm-Level Evidence," Post-Print hal-00465921, HAL.
  5. Marie-Ange VEGANZONES-VAROUDAKIS & Patrick PLANE & Tidiane KINDA, 2011. "Firm Productivity and Investment Climate in Developing Countries: How Does Middle East and North Africa Manufacturing Perform?," Working Papers 201126, CERDI.
  6. Mohamed Chaffai & Tidiane Kinda & Patrick Plane, 2012. "Textile Manufacturing in Eight Developing Countries: Does Business Environment Matter for Firm Technical Efficiency?," Journal of Development Studies, Taylor & Francis Journals, vol. 48(10), pages 1470-1488, October.
  7. Beata K. Smarzynska & Shang-Jin Wei, 2000. "Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence," NBER Working Papers 7969, National Bureau of Economic Research, Inc.
  8. Urata, Shujiro & Kawai, Hiroki, 2000. " The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, vol. 15(2), pages 79-103, September.
  9. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, August.
  10. S. Van Parys & S. James, 2010. "The Effectiveness of Tax Incentives in Attracting FDI: Evidence from the Tourism Sector in the Caribbean," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/675, Ghent University, Faculty of Economics and Business Administration.
  11. Honorati, Maddalena & Mengistae, Taye, 2007. "Corruption, business environment, and small business fixed investment in India," Policy Research Working Paper Series 4356, The World Bank.
  12. Mario Mansour & Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization," IMF Working Papers 09/157, International Monetary Fund.
  13. Smarzynska, Beata K. & Shang-Jin Wei, 2000. "Corruption and the composition of foreign direct investment - firm-level evidence," Policy Research Working Paper Series 2360, The World Bank.
  14. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2006. "Investment climate and international integration," World Development, Elsevier, vol. 34(9), pages 1498-1516, September.
  15. Ruud A. de Mooij & Sjef Ederveen, 2008. "Corporate Tax Elasticities A Reader’s Guide to Empirical Findings," Working Papers 0822, Oxford University Centre for Business Taxation.
  16. Liu, Zhiqiang, 2008. "Foreign direct investment and technology spillovers: Theory and evidence," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 176-193, February.
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