Making the Invisible Visible: Investment Promotion and Multinational Production in Latin America and the Caribbean

Abstract

Firms seeking to invest abroad must still confront important information barriers. As a consequence, a given country may provide suitable conditions for investment but remain invisible to multinational firms. Nearly all countries in the world have established investment promotion agencies (IPAs) to address these information barriers and put themselves on investors maps. Although IPAs are ubiquitous, the existing literature on the impacts of their activities is limited and only provides a view from the top, thus leaving governments without crucial inputs for designing and guiding their policy actions. Making the Invisible Visible fills in these knowledge gaps by zooming in on the effects of investment promotion policies and the mechanisms and channels thereof. To do so, it draws on the results of a highly detailed institutional survey of more than 50 IPAs and unique firm-level data on both the worldwide location of multinational firms foreign affiliates and IPA assistance for several LAC countries. Based on the results of impact evaluations using this novel micro data, the report presents robust new evidence on whether and how investment promotion works, what works in investment promotion, and when investment promotion works. In particular, it concludes that: (i) investment promotion has been (cost-)effective in attracting multinational firms and increasing LAC countries participation in multinational production; (ii) how IPAs are organized, what they do, and how they do it all influence these effects; (iii) the impact of IPA assistance has been greater when it consisted of specialized information services and was given to firms headquartered in countries and operating in sectors in which information barriers are more prominent. These findings can help countries in the region make better, more informed policy and operational decisions to take advantage of the opportunities that the current global context could create. They may thereby create a solid basis for long-term growth and sustainable development.