The Quest for Non-Resource-Based FDI: Do Taxes Matter?

Author/Editor:

Tidiane Kinda

Publication Date:

January 27, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Using manufacturing and services firm-level data for 30 sub-Saharan African (SSA) countries, this paper shows that taxation is not a significant driver for the location of foreign firms in SSA, while other investment climate factors, such as infrastructure, human capital, and insitutions, are. By analyzing disaggregate FDI data, the paper establishes that, while there is considerable contrast in behavior between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets), taxation is not a key determinant for either type of FDI. Horizontal FDI is attracted to areas with higher trade regulations, highlighting interest in protected markets. Furthermore, horizontal FDI is affected more by financing and human capital constraints, and less by infrastructure and institutional constraints, than is vertical FDI.

Series:

Working Paper No. 2014/015

Subject:

Balance of payments Economic sectors Exports Foreign corporations Foreign direct investment Human capital Infrastructure International trade Labor National accounts

English

Publication Date:

January 27, 2014

ISBN/ISSN:

9781475514094/1018-5941

Stock No:

WPIEA2014015

Pages:

24

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