Are Government Policies More Important Than Taxation in Attracting FDI

Timothy Goodspeed (), Jorge Martinez-Vazquez () and JLi Zhang

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: This paper attempts to broaden the existing empirical literature on foreign direct investment by incorporating government expenditures (both investment in infrastructure and consumption) as well as tax, classical location factors, institutional factors that may hinder business investment (such as corruption), and agglomeration effects. We investigate the determinants of FDI inflows in two unbalanced panel data sets of 47 countries from 1995-2002 and 37 countries from 1996-2002. We use fixed country and year effects and examine different infrastructure measures. The evidence indicates that lower taxes, lower corruption, and better infrastructure attract FDI. Government consumption expenditures negatively impact FDI inflows. The magnitude of the response of FDI to our investment in infrastructure is similar to that of corruption and taxes in elasticity terms.

Keywords: FDI; government expenditures; tax level and corruption (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-03-01
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (18)

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Working Paper: Are Government Policies More Important Than Taxation in Attracting FDI? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper0614

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