Economic Policies and FDI Inflows to Emerging Market Economies
IMF Working Papers, August 1, 2011
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- Economic Policies and FDI Inflows to Emerging Market Economies
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Bibliographic details
- Authors: Elif C Arbatli Saxegaard
- Published: August 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781462306251.001
Summary
- Investigates the determinants of FDI inflows to emerging market economies, concentrating on the effects of economic policies.
- Empirical analysis addresses the role of external push factors and of political stability using a domestic conflict events database.
- Core results: lowering corporate tax rates and trade tariffs, adopting fixed or managed exchange rate policies, and eliminating FDI related capital controls have played an important role in attracting FDI.
- Domestic conflict events and political instability are found to have significant negative effects on FDI, highlighting the role of inclusive policies to promote growth and avoid sudden stops of FDI inflows.
Empirical findings and determinants
- Policy measures associated with higher FDI inflows:
- Lowering corporate tax rates.
- Lowering trade tariffs.
- Adopting fixed or managed exchange rate policies.
- Eliminating FDI related capital controls.
- Negative determinants:
- Domestic conflict events.
- Political instability.
- Additional factors analyzed: external push factors (details summarized in the empirical analysis using the domestic conflict events database).
Policy implications and recommendations
- Reduce corporate income tax rates to encourage FDI inflows.
- Reduce trade tariffs to increase attractiveness to foreign investors.
- Consider exchange rate regimes (fixed or managed) as part of FDI-attraction strategies.
- Remove FDI-related capital controls to facilitate inflows.
- Promote inclusive policies and political stability to prevent sudden stops of FDI inflows and mitigate negative effects from domestic conflict events.
Subject areas and keywords
- Subjects: Balance of payments; Capital account; Corporate income tax; Emerging and frontier financial markets; Financial markets; Financial services; Foreign direct investment; Real interest rates; Taxes.
- Keywords: A. FDI inflow; Capital account; Central and Eastern Europe; Corporate income tax; country specific pull factors; crisis lead; Economic Policies; Emerging and frontier financial markets; Emerging Market Economies; FDI; FDI flow; FDI inflow; FDI inflows to EME; Foreign direct investment; Global; government policy; government stability; growth rate; major government crisis; moving average; Real interest rates; time series; WP.