Tài liệu Impact of Government Policies and Investment Agreements on FDI Inflows to Developing Countries: An E

Impact of Government Policies and Investment Agreements on FDI Inflows to Developing Countries: An Empirical Evidence


Rashmi Bangaã


Abstract


The last two decades have witnessed an extensive growth in foreign direct investment
(FDI) flows to developing countries. This has been accompanied by an increase in
competition amongst the developing countries to attract FDI, resulting in a rise in
investment incentives offered by the host governments and removal of restrictions on
operations of foreign firms in their countries. This has also led to an ever-increasing
number of bilateral investment treaties (BITs) and regional agreements on
investments. In this scenario, the question addressed by the study is: How effective
are these selective government policies and investment agreements in attracting FDI
flows to developing countries and do FDI from developed and developing countries
respond similarly to developing host countries’ policies? To answer this, the study
examines the impact of fiscal incentives offered, removal of restrictions and signing
of bilateral and regional investment agreements with developed and developing
countries on FDI inflows to developing countries, after controlling for the effect of
economic fundamentals of the host countries.


The analysis is first undertaken for aggregate FDI inflows to fifteen developing
countries of South, East and South East Asia for the period 1980-81 to 1999-2000.
Separate analyses are then undertaken for FDI from developed and developing
countries. The results based on random effects model show that fiscal incentives do
not have any significant impact on aggregate FDI, but removal of restrictions attracts
aggregate FDI. However, FDI from developed and developing countries are attracted
to different selective policies. While lowering of restrictions attract FDI from
developed countries, fiscal incentives and lower tariffs attract FDI from developing
countries. Interestingly, BITs, which emphasize on non-discriminatory treatment of
FDI, are found to have a significant impact on aggregate FDI. But it is BITs with
developed countries rather than developing countries that are found to have a
significant impact on FDI inflows to developing countries.


JEL Code: F21
Keywords: Foreign Direct Investment, selective government policies, Bilateral Investment Treaties,
FDI from Developed and developing countries


ãI thank Indian Council for Research on International Economic Relations (ICRIER) for funding this


study. I am extremely grateful to Dr. Arvind Virmani (ICRIER), Prof. K.L.Krishna (ICRIER) and Prof.
B.N.Goldar (ICRIER) for their valuable insights and suggestions. The usual disclaimer nevertheless
applies.