Working Paper 310 - Tax Policy, Foreign Direct Investment and Spillover Effects

Amadou Boly, Seydou Coulibaly () and Eric Kere
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Seydou Coulibaly: Centre d’Etudes et de Recherches sur le Développement International (CERDI), CNRS, and Université d’Auvergne (Clermont-Ferrand, France), https://cerdi.uca.fr

Working Paper Series from African Development Bank

Abstract: Foreign direct investment (FDI) inflows are crucial for economic development. To attract them, countries have typically used tax incentives, specifically reductions in corporate income tax (CIT) rates. This paper empirically assesses the impact of such CIT rate changes on FDI net inflows in Africa. Using a dynamic spatial Durbin model with fixed effects, our results show that cuts in CIT rates increase FDI net inflows in the host country and in the neighboring countries in the short and long run. These results are robust to the use of alternative spatial weighting matrices as well as the inclusion of additional controls in the baseline specification. Furthermore, we find a strategic complementarity in FDI inflows between the countries in our sample, suggesting that an increase in FDI inflows in a host country is likely to stimulate FDI inflows of its neighbors. JEL Code: C23, E62, F21, H25.

Keywords: FDI; statutory corporate tax rate; panel data; spatial econometrics. (search for similar items in EconPapers)
Date: 2019-02-22
New Economics Papers: this item is included in nep-int, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (2)

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