Promotion or liberalization: The effect of targeted investment policies on foreign direct investment inflows

Mitsuo Inada

Pacific Economic Review, 2022, vol. 27, issue 5, 489-505

Abstract: Investment policies have been implemented by policy‐makers in both developed and developing countries to open up their domestic markets to the foreign affiliates of multinational enterprises (MNEs). This study empirically examines two foreign direct investment (FDI) policies: targeted promotion and selective liberalization. It quantifies which of the two targeted measures is more effective in attracting FDI inflows and stimulating the activities of MNEs. We implement a difference‐in‐differences estimation that measures the effects of FDI policies by comparing affected and non‐affected industries before and after the change of the FDI policies in compliance with China's accession to the World Trade Organization. Using aggregated data on foreign equity and output by MNEs' foreign affiliates in China from 1999 to 2007, the results show that selective liberalization has a positive impact on FDI inflows, especially from incumbents; however, targeted promotion does not. Our results highlight the effectiveness of selective liberalization as a policy option for stimulating industrial growth.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/1468-0106.12412

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:pacecr:v:27:y:2022:i:5:p:489-505

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1361-374X

Access Statistics for this article

Pacific Economic Review is currently edited by Kenneth S. Chan and Yin-wong Cheung

More articles in Pacific Economic Review from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().