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Investment Promotion and FDI Inflows: Quality Matters

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  • Torfinn Harding
  • Beata Javorcik

Abstract

Information asymmetries constitute a significant obstacle to capital flows across international borders, and in particular to flows of foreign investment (FDI) to emerging markets. Many governments aim to reduce information barriers by emerging 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.

Suggested Citation

  • Torfinn Harding & Beata Javorcik, 2012. "Investment Promotion and FDI Inflows: Quality Matters," Economics Series Working Papers 612, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:612
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    File URL: http://www.economics.ox.ac.uk/materials/papers/12044/paper612.pdf
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    References listed on IDEAS

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    1. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
    2. Beata S. Javorcik & Mariana Spatareanu, 2009. "Tough Love: Do Czech Suppliers Learn from their Relationships with Multinationals?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 811-833, December.
    3. R. Gaston Gelos & Shang-Jin Wei, 2005. "Transparency and International Portfolio Holdings," Journal of Finance, American Finance Association, vol. 60(6), pages 2987-3020, December.
    4. Gustavo J. Bobonis & Howard J. Shatz, 2007. "Agglomeration, Adjustment, and State Policies in the Location of Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 30-43, February.
    5. Torfinn Harding & Beata S. Javorcik, 2011. "Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows," Economic Journal, Royal Economic Society, vol. 121(557), pages 1445-1476, December.
    6. Bernard Hoekman & Beata Smarzynska Javorcik, 2006. "Global Integration and Technology Transfer," World Bank Publications, The World Bank, number 6962.
    7. Javorcik, Beata S. & Spatareanu, Mariana, 2011. "Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors," Journal of Development Economics, Elsevier, vol. 96(1), pages 126-138, September.
    8. Javorcik, Beata Smarzynska & Spatareanu, Mariana, 2008. "To share or not to share: Does local participation matter for spillovers from foreign direct investment?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 194-217, February.
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    Cited by:

    1. 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).
    2. 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.
    3. 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.

    More about this item

    Keywords

    Foreign direct investment; Investment promotion; Emerging markets; Information asymmetries; Red tape; Performance of public institutions;

    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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