Developing Economies and International Investors : Do Investment Promotion Agencies Bring them Together?

Developing Economies and International Investors : Do Investment Promotion Agencies Bring them Together?

Many countries spend significant resources on investment promotion agencies in the hope of attracting inflows of foreign direct investment. Despite the importance of this question for public policy choices, little is known about the effectiveness of investment promotion efforts. This study uses newly collected data on national investment promotion agencies in 109 countries to examine the effects of investment promotion on foreign direct investment inflows. The empirical analysis follows two approaches. First, it tests whether sectors explicitly targeted by investment promotion agencies receive more foreign direct investment in the post-targeting period relative to the pre-targeting period and non-targeted sectors. Second, it examines whether the existence of an investment promotion agency is correlated with higher foreign direct investment inflows. Results from both approaches point to the same conclusion. Investment promotion efforts appear to increase foreign direct investment inflows to developing countries. Moreover, agency characteristics, such as the agency's legal status and reporting structure, affect the effectiveness of investment promotion. There is also evidence of diversion of foreign direct investment due to investment incentives offered by other countries in the same geographic region.

Saved in:
Bibliographic Details
Main Authors: Harding, Torfinn, Javorcik, Beata Smarzynska
Language:English
Published: World Bank, Washington, DC 2007-08
Subjects:ADVERTISEMENTS, AFFILIATED ORGANIZATIONS, AGGLOMERATION EFFECTS, ALTERNATIVE INVESTMENT, BANK POLICY, BEST PRACTICE, BIDDING, BUSINESS CLIMATE, BUSINESS ENVIRONMENT, BUSINESS OPPORTUNITIES, CAPITAL ALLOCATION, CHECKS, CONFIDENCE INDEX, CONFIDENTIALITY, CONSULTING FIRM, CONSULTING FIRMS, CONSUMERS, CONTRIBUTION, CONTRIBUTIONS, COUNTRY FIXED EFFECT, COUNTRY FIXED EFFECTS, COUNTRY RISK, DEPOSITORY, DEPOSITORY INSTITUTIONS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPING ECONOMIES, DIRECT INVESTMENT INFLOWS, DOMESTIC CAPITAL, DOMESTIC FIRMS, DOMESTIC INVESTMENT, DOMESTIC INVESTMENTS, DUMMY VARIABLE, ECONOMIC ANALYSIS, ECONOMIC CONDITIONS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, ECONOMIC POLICY, EFFICIENT CAPITAL, EQUIPMENT, FDI, FINANCIAL INCENTIVES, FINANCIAL INTERMEDIATION, FIXED CAPITAL, FOREIGN COMPANIES, FOREIGN DIRECT INVESTMENT, FOREIGN INVESTMENT, FOREIGN INVESTOR, FOREIGN INVESTORS, FOREIGN TRADE, GOVERNANCE INDICATORS, GROSS FIXED CAPITAL FORMATION, GROWTH RATE, HOLDING, HOST COUNTRIES, HOST COUNTRY, HOST-COUNTRY, INCOME, INCOME GROUP, INCOME GROUPS, INCOME LEVEL, INCOME LEVELS, INDIVIDUAL INVESTOR, INFLATION, INFLATION RATE, INFORMATION FLOWS, INFORMATION ON INVESTMENT, INSTRUMENT, INSURANCE, INTELLECTUAL PROPERTY, INTERNATIONAL BANK, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL INVESTMENT, INTERNATIONAL INVESTORS, INTERNATIONALIZATION STRATEGY, INVESTMENT ADVISORY SERVICES, INVESTMENT CLIMATE, INVESTMENT FLOWS, INVESTMENT INCENTIVES, INVESTMENT LOCATION DECISIONS, INVESTMENT OPPORTUNITIES, INVESTMENT PROJECTS, INVESTMENT PROMOTION, INVESTMENT PROMOTION AGENCIES, INVESTMENT PROMOTION AGENCY, IPA, IPAS, LATIN AMERICAN, LEVY, LOCAL BUSINESS, LOW INCOME, MACROECONOMIC ENVIRONMENT, MACROECONOMIC INSTABILITY, MACROECONOMIC STABILITY, MARKET FAILURE, MARKET SIZE, MARKETING, MARKETING EFFORTS, MIDDLE EAST, MULTILATERAL INVESTMENT GUARANTEE AGENCY, MULTINATIONAL CORPORATIONS, NORTH AFRICA, OPPORTUNITY COST, OUTPUT, PARTICULAR COUNTRY, POLITICAL RISK, POLITICAL STABILITY, POSITIVE COEFFICIENT, POSITIVE COEFFICIENTS, POTENTIAL INVESTMENT, POTENTIAL INVESTOR, POTENTIAL INVESTORS, PRIVATE COMPANIES, PRIVATE ENTITY, PRIVATE SECTOR, PROBABILITY, PRODUCTIVITY, PROPERTY RIGHTS, PUBLIC POLICY, PURCHASING POWER, REAL ESTATE, RED TAPE, REGIONAL DUMMIES, REGISTRATION PROCEDURES, REGISTRATION PROCESS, RETURNS, RULE OF LAW, SALARIES, SALES, SECURITIES, STOCK DATA, STOCKS, SUB-SAHARAN AFRICA, TAX, TAX INCENTIVES, TAX RATES, TECHNOLOGY TRANSFER, TELECOMMUNICATIONS, THE GAMBIA, TRANSITION ECONOMIES, TYPES OF INVESTMENT, WAGE, WAGE COST, WORLD DEVELOPMENT INDICATORS,
Online Access:http://documents.worldbank.org/curated/en/2007/08/8208700/developing-economies-international-investors-investment-promotion-agencies-bring-together
https://hdl.handle.net/10986/7289
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Many countries spend significant resources on investment promotion agencies in the hope of attracting inflows of foreign direct investment. Despite the importance of this question for public policy choices, little is known about the effectiveness of investment promotion efforts. This study uses newly collected data on national investment promotion agencies in 109 countries to examine the effects of investment promotion on foreign direct investment inflows. The empirical analysis follows two approaches. First, it tests whether sectors explicitly targeted by investment promotion agencies receive more foreign direct investment in the post-targeting period relative to the pre-targeting period and non-targeted sectors. Second, it examines whether the existence of an investment promotion agency is correlated with higher foreign direct investment inflows. Results from both approaches point to the same conclusion. Investment promotion efforts appear to increase foreign direct investment inflows to developing countries. Moreover, agency characteristics, such as the agency's legal status and reporting structure, affect the effectiveness of investment promotion. There is also evidence of diversion of foreign direct investment due to investment incentives offered by other countries in the same geographic region.

Similar Items