Does a Country Need a Promotion Agency to Attract Foreign Direct Investment : A Small Analytical Model Applied to 58 Countries
Establishing an investment promotion agency has become a central part of most countries' development strategies. Today there are more than 150 investment promotion agencies worldwide. Yet very little is known about what these agencies have bee...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2003/04/2329622/country-need-promotion-agency-attract-foreign-direct-investment-small-analytical-model-applied-58-countries http://hdl.handle.net/10986/18230 |
| Summary: | Establishing an investment promotion
agency has become a central part of most countries'
development strategies. Today there are more than 150
investment promotion agencies worldwide. Yet very little is
known about what these agencies have been really doing,
notably in emerging countries, and whether they have been
effective in influencing investors' decisions. Using
data from a new survey on 58 countries, Morisset shows that
greater investment promotion is associated with higher
cross-country foreign direct investment (FDI) flows, on top
of the influence of the country's investment climate
and market size. But this result has to be qualified on
several counts. First, the effectiveness of the agency
depends on the country's environment in which it
operates. An agency in a poor investment climate is less
effective at attracting investment. Second, the scope of
activities that an agency undertakes influences its
performance. Morisset's empirical analysis indicates
that agencies devoting more resources on policy advocacy are
more effective because such activity is not only beneficial
to foreign investors but also to domestic investors. In
contrast, investment generation or targeting strategies
appear expensive and risky, especially in countries with
poor investment climates. Finally, certain internal
characteristics of the agencies are associated with greater
effectiveness. The agencies that have established reporting
mechanisms to the country's highest policymakers (the
president or prime minister) or to the private sector have
been systematically more efficient at attracting foreign
direct investment. Such institutional links are crucial
because they contribute to strengthen the government's
commitment as well as reinforce the agency's
credibility and visibility in the business community. |
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