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Developing economies and international investors. Do investment promotion agencies bring them together?

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Abstract

Many countries spend significant resources on investment promotion agencies (IPAs) in the hope of attracting inflows of foreign direct investment (FDI). Despite the importance of this question for public policy choices, little is known about the effectiveness of investment promotion efforts. This study uses newly collected data on national IPAs in 109 countries to examine the effects of investment promotion on FDI inflows. The empirical analysis follows two approaches. First, we test whether sectors explicitly targeted by IPAs receive more FDI in the post-targeting period relative to the pre-targeting period and non-targeted sectors. Second, we examine whether the existence of an IPA is correlated with higher FDI inflows. Results from both approaches point to the same conclusion. Investment promotion efforts appear to increase FDI inflows to developing countries. Moreover, agency characteristics, such as its legal status and reporting structure, affect the effectiveness of investment promotion. There is also evidence of FDI diversion due to investment incentives offered by other countries in the same geographic region.

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  • Torfinn Harding & Beata Smarzynska Javorcik, 2007. "Developing economies and international investors. Do investment promotion agencies bring them together?," Discussion Papers 513, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:513
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    1. repec:bla:jecrev:v:68:y:2017:i:2:p:232-243 is not listed on IDEAS
    2. Laura Alfaro & Andrew Charlton, 2007. "Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?," CEP Discussion Papers dp0830, Centre for Economic Performance, LSE.
    3. Harding, Torfinn & Javorcik, Beata, 2009. "A Touch of Sophistication: FDI and Unit Values of Exports," CEPR Discussion Papers 7596, C.E.P.R. Discussion Papers.
    4. Maksimov, Vladislav & Wang, Stephanie Lu & Luo, Yadong, 2017. "Reducing poverty in the least developed countries: The role of small and medium enterprises," Journal of World Business, Elsevier, vol. 52(2), pages 244-257.
    5. Bin Ni, 2013. "Are Investment Promotion Agencies Doing the Thing Right? Evidence from China," OSIPP Discussion Paper 13E004Rev., Osaka School of International Public Policy, Osaka University, revised Jan 2015.
    6. Alaya MAROUANE (Université of Tunis) & Dalila NICET-CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "The law of growth and attraction: an endogenous model of absorptive capacities, FDI and income for MENA countries," Cahiers du GREThA 2008-27, Groupe de Recherche en Economie Théorique et Appliquée.
    7. 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.
    8. repec:wsi:jicepx:v:03:y:2012:i:02:n:s1793993312500135 is not listed on IDEAS
    9. Beata S. Javorcik & Mariana Spatareanu, 2008. "Liquidity Constraints and Linkages with Multinationals," Working Papers Rutgers University, Newark 2008-005, Department of Economics, Rutgers University, Newark.
    10. Brenton, Paul & Newfarmer, Richard & Walkenhorst, Peter, 2009. "Avenues for Export Diversification: Issues for Low-Income Countries," MPRA Paper 22758, University Library of Munich, Germany.
    11. Obeng, Camara Kwasi, 2014. "Effect of corporate tax on sector specific foreign direct investment in Ghana," MPRA Paper 58454, University Library of Munich, Germany.
    12. Magdolna Sass, 2010. "International Fragmentation of Tradable Business Services: the Case of Hungary," IEHAS Discussion Papers 1024, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    13. Dalila NICET- CHENAF (GREThA-GRES) & Eric ROUGIER (GREThA-GRES), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GRES (2002-2009) 2008-17, Groupement de Recherches Economiques et Sociales.
    14. Adriana Giurgiu, 2012. "Investment Incentives and the Global Competition for Capital – By K.P. Thomas," Journal of Common Market Studies, Wiley Blackwell, vol. 50(1), pages 190-190, January.
    15. José Guimón* & Sergey Filippov, 2012. "Competing for High-quality FDI: Management Challenges for Investment Promotion Agencies," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 4(2), pages 25-44, July.

    More about this item

    Keywords

    foreign direct investment; investment promotion; investment incentives;

    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
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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