Policy competition for foreign direct investment between asymmetric countries

Competition for foreign direct investment has been neglected as a subject of research. Yet many claim that such competition is having deleterious effects, such as lowering governments’ standards of protection of the environment and workers’ rights.This book looks at the evidence and assesses the impact of competition among governments to attract FDI. It finds little evidence directly to support fears of a "global race to the bottom" in labour and environmental standards. The widespread use of investment incentives, however, in OECD and developing countries alike, tends to be bad for government transparency and accountability. This is highly detrimental both to economic policy making and to the construction of democratic institutions in developing countries. The author proposes a shift away from incentive-based policies for attracting FDI towards a rules-based approach on both a national and international level.

Fierce competition has arisen among developing as well as developed countries to attract increasing volumes of foreign direct investment (FDI). This new attitude in developing countries is part of the broad change towards market-friendly policies, as barriers and regulations are dismantled and intense competition for FDI is taking place at national as well as sub-national levels. This chapter addresses the global and regional dimensions of such competition. Section 7.1 addresses the main issues regarding policy competition for FDI. Section 7.2 describes the logic of the competition and the existing empirical evidence on its effects. Section 7.3 deals with the existing multilateral disciplines on investments. Section 7.4 considers the regional dimension of FDI policy competition, analyzing the cases of the European Union and Mercosur. Section 7.5 presents concluding remarks.

The general benefits of attracting foreign direct investment (FDI), and the potential of FDI as a tool for regional economic development in particular, are commonly recognised by policy makers and analysts. A recent study prepared under the auspices of the OECD Committee on International Investment and Multinational Enterprises concluded that FDI generally supports growth in developing, emerging and transition economies, irrespective of their initial state of development ...

This paper examines empirically whether countries with relatively more lax environmental regimes have a comparative advantage in their competition for foreign direct investment. It seeks to contribute to the literature in several important ways. First, we use a measure of environmental stringency which is based on managers’ perceptions of the stringency in a given country and which gives us the opportunity to analyse a broad sample of both source and host countries. Second, an important strength of the technical analysis is the non-linear modeling of the impact of policy stringency on FDI. Third, we use a ‘state-of-theart’ FDI modelling strategy, which allows us to differentiate between different models of production fragmentation. Support is found for the effect of relative environmental policy stringency on foreign direct investment patterns. However, the effect is relatively small in comparison with other factors, including more general regulatory quality. Moreover, the relationship appears to be non-linear with the effects of increased relative environmental policy stringency in the host country decreasing after a certain threshold.

State tax competition for foreign direct investment: a winnable war?

Corporate income taxation in Central and Eastern European countries and tax competition for foreign direct investment

The issue of the effectiveness of open competition for foreign direct investment is generally overshadowed by the much larger question about the impact of FDI on economic growth and development. On the positive side, FDI has the potential to bring employment, capital, technology and knowledge to a country. It can also increase income, foreign exchange, and stimulate domestic investment. Moreover, so called spill-over effects can raise productivity of local firms, lower the cost of R&D and innovation, stimulate the establishment of local supplier networks, and generally facilitate an increased integration in global markets. On the negative side, FDI is associated with the risk of lowered domestic savings and investment, the crowding-out of local firms in capital markets, distorted competition, diminished regulatory standards, and the absence of expected spillover effects.KeywordsForeign Direct InvestmentHost CountryInvestment ProjectPrivate ReturnPositive ExternalityThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

A WTO Agreement on Investment: A Solution in Search of a Problem?

ABSTRACTExtant scholarship treats national policies concerning labour rights as a function of economic factors and yet neglects influences of policies among economically competing states. Relying on the policy interdependence theory, this study argues that labour rights policy in a state is dependent on its economic competitors’ labour policy decisions. It specifically maintains that the intensifying competition for foreign direct investment and exports as well as against imports channels negative externalities of deteriorating labour protection in competing states which drives expansive downward policy mimicking and leads to a global decline in labour rights – a race to the bottom. Utilising spatial econometric technique to analyse a new data on labour rights for the period 1994–2009, it finds that labour rights practices are interdependent among economic competitors and experience global deteriorations; whereas labour rights laws remain largely independent due to high policy and reputational costs of lowering them and show more fluctuations.

As an integral component of China's rapid economic growth, the environmental externalities of foreign investment warrant rigorous assessment. Using Panel data from Chinese prefecture-level cities from 2002 to 2022, this study examined the impact of foreign direct investment (FDI) on urban pollution through the lens of its sectoral composition. Our results indicated that a higher proportion of FDI in the secondary sector significantly intensified urban pollution. This effect was particularly pronounced in western regions, cities with weaker environmental regulations and non-tourism-oriented cities. Mechanism analysis revealed that in the competition for FDI, local governments often lower environmental standards, which amplified the negative externalities of this sectoral bias and reinforced the "pollution haven" effect. Furthermore, a threshold regression analysis demonstrated that as inter-jurisdictional competition intensified, the adverse environmental impacts of secondary-sector FDI escalated in a stepwise manner. This study offers a structuralist explanation for the "pollution paradox" and provides actionable policy insights. Specifically, we advocate for a structural transformation of FDI, reformed performance evaluations for governments, and adapted environmental regulatory frameworks. These measures can help break the "race to the bottom" dynamic and achieve a balance between FDI quality and sustainable development.

Market size and antidumping in duopolistic competition

Firms adjust to differences in market size and demand uncertainty by changing the frequency and size of their export shipments. In our inventory model, transportation costs and optimal shipment frequency are determined on the basis of demand as well as inventory and per shipments costs. Using a cross section of monthly firm-product-destination level French export data we confirm that firms adjust on both margins for market size. In a stochastic setting, firms adjust to increased uncertainty by reducing their sales and, for a given export volume, by reducing their number of shipments and increasing their shipment size

Because of the importance of its products and huge value, the oil and gas industry itself occupies an important position in the national economic system. However, the development of this industry is unbalanced and insufficient, with large differences in market size, liquidity, solvency, profitability, valuation, and growth potential, and few companies have achieved good performance in all of these dimensions. This study delves into the unbalanced development and varied performance metrics among key petrochemical companies listed in the U.S. stock market, utilizing both fundamental analysis and non-financial analysis method, as well as to conduct a specific study on the competitive situation of Diamondback Energy. This study has elucidated that Diamondback Energy lags behind its peers in terms of liquidity and solvency. However, it is worth noting that despite macroeconomic challenges such as economic downturns and industry-wide downturns, its profitability remains relatively strong within the industry. Additionally, it holds a certain advantage over its peers in terms of financial valuation and growth potential, making it a growth-oriented enterprise. The study suggests that investors should consider market volatility and the company's management risk when entering the oil and gas industry in order to maximize returns.

Shipment Frequency of Exporters and Demand Uncertainty

Trade Integration and Business Tax Differentials: Theory and Evidence from OECD Countries