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THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI

Year 2013, Volume: 5 Issue: 2, 85 - 94, 01.12.2013

Abstract

This paper aims at extending the empirical literature on foreign direct investment
(FDI) determinants by examining how FDI reacts to corporate tax rates and
whether this reaction is conditional on some other economic factors, such as
agglomeration economies. To that end, we gather the relevant data on developed
market economies and employ an appropriate econometric technique (Pooled
Mean Group - PMG estimator) which allows for both dynamics and parameter
heterogeneity to be included in the model. Our results suggest that both taxation
and agglomeration economies play an important role in attracting FDI.

References

  • Bellak, Christian, Leibrecht, Markus and Damijan, Jože P. (2009), “Infrastructure
  • Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries”, The World Economy, pp.267-290. Bénassy-Quéré, Agnès, Fontagné, Lionel and Lahréche-Révil, Amina, (2005),
  • “How Does FDI React to Corporate Taxation?”, International Tax and Public Finance, Vol. 12, pp.583-603. Brülhart, Marius, Jametti, Mario and Schmidheiny, Kurt, (2008), “Do
  • Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?”, De Mooij, Ruud A. and Ederveen, Sjef, (2003),“Taxation and Foreign Direct
  • Investment: A Synthesis of Empirical Research”,International Tax and Public Finance, Vol.10, pp.673-693. De Mooij, Ruud A. and Ederveen, Sjef, (2006), “What a Difference Does it
  • Make? Understanding the Empirical Literature on Taxation and International Capital Flows”, European Economy European Commission Directorate-General for Economic and Financial Affairs Economic Papers, No. 261. Dembour, C. (2008), “Competition for Business Location: A Survey, Journal of
  • Industry”, Competition and Trade, Vol. 8, pp.89-111. Devereux, Michael P., Griffith, Rachel and Klemm, Alexander, (2002) “Corporate
  • Income Tax Reforms and International Tax Competition”, Economic Policy, Vol. , pp.451-495. Devereux, Michael P., Griffith, Rachel and Simpson, Helen, (2007), “Firm
  • Location Decisions, Regional Grants and Agglomeration Externalities”, Journal of Public Economics, Vol. 91, pp. 413-435. Devereux, Michael P., Lockwood, Ben and Redoano, Michela, (2008), “Do
  • Countries Compete over Corporate Tax Rates?”, Journal of Public Economics, Vol.92, pp.1210-1235.
  • Feld, Lars P. and Heckemeyer, Jost H., (2011), “FDI and Taxation: A Meta
  • Study”, Journal of Economic Surveys, Vol. 25, No. 2, pp.233-272. Goodspeed, Timothy, Martinez-Vazquez, Jorge and Zhang, Li, (2007): “Are
  • Government Policies More Important than Taxation in Attracting FDI?”, Hunter College Department of Economics Working Papers, Working paper No. 414. Hajakova, Dana, Nicoletti, Giuseppe, Vartia, Laura and Yoo Kwang-Yeol, (2006),
  • “Taxation and Business Environment as Drivers of Foreign Direct Investment in OECD Countries”, OECD Economic Studies, No. 43. Hansson, Åsa and Olofsdotter, Karin, (2012), “FDI, Taxes and Agglomeration
  • Economies in the EU15”, Applied Economics, forthcoming. Kamps Christophe, (2008) Database on Capital Stocks in OECD Countries, Kiel
  • Institute for the World Economy, http://www.ifw- kiel.de/forschung/datenbanken/netcap [Accessed 25.03.2013]
  • Klemm, Alexander, (2005), Corporate tax rate data, Institute for Fiscal Studies, http://www.ifs.org.uk/publications/3210, [Accessed 21.04.2013]
  • OECD (2008), Tax Effects on Foreign Direct Investment, OECD Policy Brief, http://www.oecd.org/daf/inv/investment-policy/40152903.pdf, 06.2013] Accessed
  • Pesaran, M.Hashem and Smith, Ron, (1995), “Estimating Long-Run Relationships from Dynamic Heterogeneous Panels”, Journal of Econometrics, Vol. 68, pp.79
  • Pesaran, M. Hashem, Shin, Yongcelon and Smith, Ron, (1999), “Pooled Mean
  • Group Estimation of Dynamic Heterogeneous Panels”, Journal of American Statistical Association, Vol. 94, pp.621-634.
Year 2013, Volume: 5 Issue: 2, 85 - 94, 01.12.2013

Abstract

References

  • Bellak, Christian, Leibrecht, Markus and Damijan, Jože P. (2009), “Infrastructure
  • Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries”, The World Economy, pp.267-290. Bénassy-Quéré, Agnès, Fontagné, Lionel and Lahréche-Révil, Amina, (2005),
  • “How Does FDI React to Corporate Taxation?”, International Tax and Public Finance, Vol. 12, pp.583-603. Brülhart, Marius, Jametti, Mario and Schmidheiny, Kurt, (2008), “Do
  • Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?”, De Mooij, Ruud A. and Ederveen, Sjef, (2003),“Taxation and Foreign Direct
  • Investment: A Synthesis of Empirical Research”,International Tax and Public Finance, Vol.10, pp.673-693. De Mooij, Ruud A. and Ederveen, Sjef, (2006), “What a Difference Does it
  • Make? Understanding the Empirical Literature on Taxation and International Capital Flows”, European Economy European Commission Directorate-General for Economic and Financial Affairs Economic Papers, No. 261. Dembour, C. (2008), “Competition for Business Location: A Survey, Journal of
  • Industry”, Competition and Trade, Vol. 8, pp.89-111. Devereux, Michael P., Griffith, Rachel and Klemm, Alexander, (2002) “Corporate
  • Income Tax Reforms and International Tax Competition”, Economic Policy, Vol. , pp.451-495. Devereux, Michael P., Griffith, Rachel and Simpson, Helen, (2007), “Firm
  • Location Decisions, Regional Grants and Agglomeration Externalities”, Journal of Public Economics, Vol. 91, pp. 413-435. Devereux, Michael P., Lockwood, Ben and Redoano, Michela, (2008), “Do
  • Countries Compete over Corporate Tax Rates?”, Journal of Public Economics, Vol.92, pp.1210-1235.
  • Feld, Lars P. and Heckemeyer, Jost H., (2011), “FDI and Taxation: A Meta
  • Study”, Journal of Economic Surveys, Vol. 25, No. 2, pp.233-272. Goodspeed, Timothy, Martinez-Vazquez, Jorge and Zhang, Li, (2007): “Are
  • Government Policies More Important than Taxation in Attracting FDI?”, Hunter College Department of Economics Working Papers, Working paper No. 414. Hajakova, Dana, Nicoletti, Giuseppe, Vartia, Laura and Yoo Kwang-Yeol, (2006),
  • “Taxation and Business Environment as Drivers of Foreign Direct Investment in OECD Countries”, OECD Economic Studies, No. 43. Hansson, Åsa and Olofsdotter, Karin, (2012), “FDI, Taxes and Agglomeration
  • Economies in the EU15”, Applied Economics, forthcoming. Kamps Christophe, (2008) Database on Capital Stocks in OECD Countries, Kiel
  • Institute for the World Economy, http://www.ifw- kiel.de/forschung/datenbanken/netcap [Accessed 25.03.2013]
  • Klemm, Alexander, (2005), Corporate tax rate data, Institute for Fiscal Studies, http://www.ifs.org.uk/publications/3210, [Accessed 21.04.2013]
  • OECD (2008), Tax Effects on Foreign Direct Investment, OECD Policy Brief, http://www.oecd.org/daf/inv/investment-policy/40152903.pdf, 06.2013] Accessed
  • Pesaran, M.Hashem and Smith, Ron, (1995), “Estimating Long-Run Relationships from Dynamic Heterogeneous Panels”, Journal of Econometrics, Vol. 68, pp.79
  • Pesaran, M. Hashem, Shin, Yongcelon and Smith, Ron, (1999), “Pooled Mean
  • Group Estimation of Dynamic Heterogeneous Panels”, Journal of American Statistical Association, Vol. 94, pp.621-634.
There are 21 citations in total.

Details

Other ID JA92JK48CR
Journal Section Articles
Authors

Silvia Golem This is me

Ivo Bakota This is me

Publication Date December 1, 2013
Published in Issue Year 2013 Volume: 5 Issue: 2

Cite

APA Golem, S., & Bakota, I. (2013). THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI. International Journal of Economics and Finance Studies, 5(2), 85-94.
AMA Golem S, Bakota I. THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI. IJEFS. December 2013;5(2):85-94.
Chicago Golem, Silvia, and Ivo Bakota. “THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI”. International Journal of Economics and Finance Studies 5, no. 2 (December 2013): 85-94.
EndNote Golem S, Bakota I (December 1, 2013) THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI. International Journal of Economics and Finance Studies 5 2 85–94.
IEEE S. Golem and I. Bakota, “THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI”, IJEFS, vol. 5, no. 2, pp. 85–94, 2013.
ISNAD Golem, Silvia - Bakota, Ivo. “THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI”. International Journal of Economics and Finance Studies 5/2 (December 2013), 85-94.
JAMA Golem S, Bakota I. THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI. IJEFS. 2013;5:85–94.
MLA Golem, Silvia and Ivo Bakota. “THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI”. International Journal of Economics and Finance Studies, vol. 5, no. 2, 2013, pp. 85-94.
Vancouver Golem S, Bakota I. THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI. IJEFS. 2013;5(2):85-94.