THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIES ON FDI

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

Silvia Golem Ivo Bakota

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.

Keywords

FDI, taxation, agglomeration economies, PMG estimation

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