The Quest for Non-Resource-Based FDI: Do Taxes Matter?
25 Pages Posted: 27 Feb 2014
Date Written: January 2014
Using manufacturing and services firm-level data for 30 sub-Saharan African (SSA) countries, this paper shows that taxation is not a significant driver for the location of foreign firms in SSA, while other investment climate factors, such as infrastructure, human capital, and insitutions, are. By analyzing disaggregate FDI data, the paper establishes that, while there is considerable contrast in behavior between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets), taxation is not a key determinant for either type of FDI. Horizontal FDI is attracted to areas with higher trade regulations, highlighting interest in protected markets. Furthermore, horizontal FDI is affected more by financing and human capital constraints, and less by infrastructure and institutional constraints, than is vertical FDI.
Keywords: Taxes, Sub-Saharan Africa, Foreign direct investment, Human capital, Infrastructure, Developing countries, Investment climate, taxation, Non-resource-based FDI, horizontal FDI, vertical FDI, firm-level data, sub-Saharan Africa., foreign ownership, tax incentives, foreign capital, foreign investors, host country, mnes, external financing, foreign investments, host countries, foreign companies, investment climates, medium-sized firms, medium-sized enterprises, foreign participation, investment decisions, fixed investment, international investment, credit markets, market access, market size, multinational enterprises
JEL Classification: F21, F23, O14, O55
Suggested Citation: Suggested Citation