Impact assessment of the Investment Facilitation for Development (IFD) Agreement

This paper presents quantitative projections on the expected economic impact of the Investment Facilitation for Development (IFD) Agreement, which proceeds in three steps. First, we estimate the empirical impact of the host-economy investment facilitation environment on foreign affiliate sales. Second, we map the agreement's mandatory and soft obligations (including best-endeavour) into advalorem equivalent reductions in the costs of multinational production. Third, the economic effects of these policy shocks are projected with a multi-region, multi-sector economic model that explicitly incorporates affiliate sales, foreign direct investment (FDI) and input-output linkages. Our benchmark simulations project that implementation of the IFD Agreement's mandatory obligations would increase global real GDP by 0.8 per cent over the next ten years, driven by a substantial expansion in global FDI flows and foreign affiliate sales. The simulations indicate that developing and low-income economies are expected to see the largest increases in GDP, since they are expected to see the largest improvement in the investment facilitation environment.