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

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. | Impact of Government Policies and Investment Agreements on FDI Inflows to Developing Countries An Empirical Evidence Rashmi Bcrnga 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 .

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