Who's Who in Foreign Direct Investment Promotion

Abstract

The existing macroeconomic evidence predominantly demonstrates positive effects of foreign direct investment (FDI) on growth and competitiveness. Countries thus tend to have systematic policies in place for FDI promotion, devised and implemented especially through investment promotion agencies (IPAs). This paper adds to the literature on FDI incentives by examining the beliefs or attitudes of people working in the FDI promotion industry and the extent to which they coincide with the known FDI pull factors. To that end, we utilize a data set of attitudes of people largely working in regional and national IPAs in Europe and the Western Balkans. Cluster analysis reveals that in fact we can talk about three sets of beliefs or attitudes toward FDI: "pessimistic," "Keynesian," and "neoclassical." Keynesians largely favor fiscal measures for attracting FDI, whereas neoclassicals dislike fiscal measures and government interventions and prefer good economic fundamentals and infrastructure and qualified personnel. Interestingly enough, most of the eastern European Union as well as southeastern European respondents can be classified as Keynesians; on the other hand, almost all neoclassicals are from western Europe.