FDI and investment barriers in developing economies

Arita Shawn and Kiyoyasu Tanaka

No 431, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: Does investment liberalization in developing economies affect FDI decisions differently across individual firms? To address this question, we simulate the response of individual firms to reductions in investment costs across developing economies. We explore two policy experiments: elimination of setup-procedure requirements for foreign investors and a reduction in corporate tax rates on foreign-owned multinationals. We find that a relaxing of discriminatory foreign investment procedures induces middle productive firms to increase their entry and production in developing economies substantially, but the most productive firms to expand moderately. Multinationals expand their entry and production in developing economies more substantially following a decline in entry barriers than following a decrease in corporate tax rates.

Keywords: Developing countries; Foreign investments; International business enterprises; FDI; Firm heterogeneity; Investment liberalization (search for similar items in EconPapers)
JEL-codes: C68 F21 F23 O2 (search for similar items in EconPapers)
Date: 2013-11-01
New Economics Papers: this item is included in nep-acc and nep-int
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Citations: View citations in EconPapers (2)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 431. 2013-11-01

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