 Bilateral tax agreement and FDI inflows: Evidence from Hong Kong investment in the Mainland ChinaChangyuan Luo, Qin Luo and Shuai Zeng China Economic Review, 2022, vol. 73, issue C Abstract: This paper explains the changes in the composition of the source countries or regions of FDI in China from the perspective of taxation. Based on FDI data from 2003 to 2012, the empirical test, employing the difference-in-differences (DID) model, shows that, after the implementation of the tax agreement between the mainland and Hong Kong in 2007, FDI from Hong Kong increased significantly. After the integration of domestic and foreign-funded enterprise income tax systems in 2008, Hong Kong capital inflows increased even more drastically. The extended analyses show that, the substantial increase in Hong Kong capital after the implementation of this bilateral tax agreement was partly related to the diversion effect of investment. MNCs might have diverted investment from other tax havens to the mainland via Hong Kong, resulting in a sharp increase in the amount and proportion of Hong Kong investment, whereas those of FDI from other tax havens have declined. Keywords: Bilateral tax agreement; FDI; Hong Kong; Investment diversion effect (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:73:y:2022:i:c:s1043951x22000463 DOI: 10.1016/j.chieco.2022.101788 Access Statistics for this article China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu More articles in China Economic Review from Elsevier |
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