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

43 Pages Posted: 29 May 2008

See all articles by Torfinn Harding

Torfinn Harding

University of Oxford

Beata Smarzynska Javorcik

University of Oxford - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2007

Abstract

Many countries spend significant resources on investment promotion agencies (IPAs) in the hope of attracting inflows of foreign direct investment (FDI). 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 IPAs in 109 countries to examine the effects of investment promotion on FDI inflows. The empirical analysis follows two approaches. First, we test whether sectors explicitly targeted by IPAs receive more FDI in the post-targeting period relative to the pre-targeting period and non-targeted sectors. Second, we examine whether the existence of an IPA is correlated with higher FDI inflows. Results from both approaches point to the same conclusion. Investment promotion efforts appear to increase FDI inflows to developing countries. Moreover, agency characteristics, such as its legal status and reporting structure, affect the effectiveness of investment promotion. There is also evidence of FDI diversion due to investment incentives offered by other countries in the same geographic region.

Keywords: foreign direct investment, investment incentives, investment promotion

JEL Classification: F21, F23, O1

Suggested Citation

Harding, Torfinn and Smarzynska Javorcik, Beata, Developing Economies and International Investors: Do Investment Promotion Agencies Bring Them Together? (August 2007). Available at SSRN: https://ssrn.com/abstract=1138531

Torfinn Harding (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://www.economics.ox.ac.uk/index.php/staff/page/harding

Beata Smarzynska Javorcik

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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