Publication: The Effectiveness of Promotion Agencies at Attracting Foreign Direct Investment
Date
2004
ISSN
Published
2004
Author(s)
Morisset, Jacques
Andrews-Johnson, Kelly
Abstract
A perplexing question has become
increasingly important: Does investment promotion really
work? The authors hereby made a major step in providing a
convincing answer to this question. Because many countries
were not yet trying to promote investment, the authors could
conduct a very simple test: compare foreign direct
investment (FDI) flows into countries that had promotion
activities in the United States, with the flows into
countries that didn't. The study provided some crude
support for the idea that promotion worked and, with some
assumptions, the costs of attracting an investor, or its
trade-off seemed to favor promotion. But more recent data
from this survey provided the authors a more sophisticated
methodology; as a result, their study is more convincing,
and addresses many more questions than earlier work. They
find the median expenditure on investment by developing
countries to be smaller than expected. However, the study
shows that expenditures below a certain annual level yield
few, if any returns. Where the investment climate is bad,
efforts to improve policy seem sensible; but in fact, in
countries with very poor investment climates, returns to
expenditures on other promotion activities are likely to be
especially low. Similarly, it is likely that promotion has
more impact on certain kinds of investors than on others.
The research stipulates important factors about
organizational issues, and, results show that agencies with
some kind of participation from the private sector, do
better than those that are purely governmental. It also
provides evidence to suggest that, at least for many
countries, a dollar spent on investment promotion yields a
better return than a dollar provided as a subsidy or given
up through a tax incentive program.
Citation
“Morisset, Jacques; Andrews-Johnson, Kelly. 2004. The Effectiveness of Promotion Agencies at Attracting Foreign Direct Investment. FIAS Occasional Paper;No. 16. © Washington, DC: World Bank. http://openknowledge.worldbank.org/handle/10986/15073 License: CC BY 3.0 IGO.”