Investment Incentives Research Articles

Did FASB Interpretation Number 48 (FIN 48) Affect Noninnovative Corporate Investment?

ABSTRACT As firms lower innovative investment in response to FASB Interpretation Number 48 (FIN 48), they choose between reallocating those funds to noninnovative investment, not changing noninnovative investment, or lowering noninnovative investment. Using a difference-in-differences research design, I provide evidence of the latter outcome. I also show that the results persist each year following FIN 48, are consistent across both types of noninnovative investment, and are more prominent among firms with declining research and development (R&D) and among firms not previously under continuous audit. I also provide evidence that these effects are mitigated when managers have greater incentives to reallocate investment. My findings respond to Blouin and Robinson (2014) call to understand the real effects of FIN 48 by providing evidence that it lowers firms’ incentives for noninnovative investment.

China’s Economic and Currency Management Will Make It Difficult to Dethrone the Dollar

This paper focuses on the rivalry between the US and China, with particular emphasis on the renminbi (RMB) and the US dollar. It examines three related points. First, for China to upend the dominance of the US dollar and replace it, even partially, with the RMB would require major—and probably disruptive— changes in China’s financial markets and monetary policies. Is the Chinese government willing to take those steps? Second, can China overtake the US economy and provide another incentive for international investors to start switching to the RMB? And third, is it still a question of whether de-dollarisation is happening, or has the question moved on to asking how fast the RMB can rival the US dollar in the 21st century? Finally, the paper examines China’s economic problems, which are set to damage the RMB’s reputation and progress as a reserve currency.

Tax incentives for investments in NPOs in a mobilization economy

The subject of the study is the mechanism of tax incentives for non-profit organizations in the context of a special military operation. The paper examines the importance of NGOs in this context, the main trends in the development of the non-profit sector, as well as possible measures of tax incentives for NGOs to solve primary social problems. The author focuses on the central place of non-profit organizations in the mechanism of ensuring financing of the needs of the state and society, as well as the high degree of importance of the non-profit sector in providing social services to the population, combating emerging challenges in the social sphere. Special attention is paid to the development of proposals on tax incentives for charity from legal entities in terms of corporate income tax and value added tax. The main research methods used are analysis and synthesis, analogy and description, induction and deduction, statistical grouping. The scientific novelty of the work consists in the formulation of specific proposals for changing the current tax legislation to create a mechanism for additional financing of priority social areas and providing the necessary end beneficiaries in a mobilization economy. The proposed mechanism is based on the introduction of new tax incentives for the implementation of charity and the functioning of non-profit organizations, with special attention to the targeting and precision of the proposed measures. Based on the results of the work, a conclusion is made about the effectiveness of the proposed legislative changes based on the calculation of shortfall in state budget revenues and the allocation of advantages of these proposals. In addition, attention is paid to the wide possibilities of the described measures of tax incentives for charity due to the options initially laid down for varying categories of goods subject to tax preferences, depending on the social context and priorities of the state in a certain period of time.

TAX INCENTIVE SCHEMES AND BALANCED REGIONAL ECONOMIC GROWTH IN TURKEY

This study delves into the impact of investment incentives on regional development and economic growth in Turkey. It provides a comprehensive overview of the investment incentive system introduced in 2012, categorizing regions based on development levels and offering various incentives such as tax exemptions, reductions, and social security support. The research investigates the relationship between investment incentives, public expenditures, regional differences, and economic growth. Through a thorough examination, the study aims to understand how the current incentive system addresses regional disparities and promotes balanced economic growth. The literature review explores international perspectives, including China and Italy, providing insights into the effectiveness of tax incentives on R&D investment and macroeconomic performance. The study also analyzes the European Commission's report on tax incentives for venture capital and business angels. The results and discussion section outlines the investment incentive framework in Turkey, emphasizing regional, priority, large-scale, and strategic schemes. The research considers twelve investment categories, each supported by specific incentive measures. The conclusion emphasizes the importance of aligning incentives with regional needs, fostering equitable development, and promoting strategic sectors. It highlights the significance of quasi-tax supports, VAT exemptions, and interest subsidies in encouraging investments. The employment and income tax withholding supports, especially in the 6th region, are recognized for their contribution to reducing unemployment. The study concludes by underscoring the need for continuous evaluation and adaptation of incentive schemes to address evolving economic challenges.

Post-approval indications and clinical trials for cardiovascular drugs: some implications of the US Inflation Reduction Act

Objective To describe the historical baseline landscape of cardiovascular drug post-approval activity, including the number and timing of post-approval clinical trials and approved indications. The US Inflation Reduction Act of 2022 (IRA) Drug Price Negotiation Program (DPNP) and its Maximum Fair Prices (MFPs) will affect incentives for investment in post-approval activity such as clinical trials for new indications. While three of the first ten drugs selected for the DPNP and MFP-setting are cardiovascular or antithrombotic drugs, limited attention has been paid to potential cardiovascular drug impacts, and to post-approval innovation. Methods For the 65 drugs originally approved by the FDA from 1995 through 2021 for a cardiovascular or antithrombotic indication (60 small molecules and 5 biologics), we develop a novel dataset of industry-sponsored, post-approval clinical trials and FDA-approved label changes for new indications. We analyze their number and timing relative to DPNP drug selection and MFP implementation dates, by drug approval-year cohort. Results We find 49% of indications were awarded and 76% of industry-funded clinical trials were completed post-approval, reaching 98% of trials for drugs in the earliest 1995–99 cohort. For the 60 small molecules, 76% of post-approval trials ended five years or more after original drug approval, 65% ended seven or more years after original drug approval (i.e. after potential DPNP selection), and 53% nine or more years after original drug approval (i.e. after potential MFP implementation). Conclusions Post-approval FDA indication approvals and clinical trial starts and primary completion dates often occurred after or near new DPNP selection and MFP implementation dates. This has economic consequences for future investment incentives. Post-approval trials for small molecules, longer-duration trials, and larger-enrollment trials, and post-approval indications focused on limited patient populations and older patients could face particular economic challenges.

Targeted Liberalization: China's foreign investment regulation reform and its post‐WTO‐accession export surge

AbstractTo gain membership in the World Trade Organization (WTO) in 2001, China substantially modified its regulation of foreign direct investment. These reforms coincided with rapid changes in the composition of capital inflows, as the dominant entry mode shifted from joint venture to wholly foreign owned affiliate. Foreign‐invested enterprises contributed a rising share of China's rapidly growing exports. We investigate how much China's foreign ownership liberalization contributed to these observed trends in foreign investment flows and Chinese exports. Accounting for both the set of activities from which it removed foreign equity caps and those into which it newly encouraged investment, we estimate the impact of China's reforms on firm entry and exports using a difference‐in‐differences estimator. To eliminate bias resulting from heterogeneous and dynamic treatment effects, we also apply novel dynamic difference‐in‐differences estimators. We find that removal of foreign equity caps induced entry of wholly foreign owned firms, while having no significant effect on entry of new joint ventures. Concurrently, the designation of new activities for investment incentives induced foreign entry, particularly in the form of joint ventures. Reduced‐form calculations imply that FDI policy changes explain almost 9% of the increase in exports from foreign‐invested firms over the decade studied. The effect was larger in sectors identified as “high‐tech industries” by the Chinese government, as they contribute most of the estimated policy‐driven export growth from foreign‐invested firms. Thus, China's FDI regulation reform following WTO entry was targeted liberalization: elimination of equity share limits induced new foreign entry, while investment incentives encouraged formation of joint ventures.

Investment incentives of rent controls and gentrification: Evidence from German micro data

AbstractWe empirically document that the effectiveness of the German rent control introduced in 2015 in achieving rental housing affordability is limited. Exploring the reasons for this limited effectiveness, we focus on the impact of the rent control on the yield on rental housing investments proxied by rent‐price ratios, which we derive by predicting sale prices to rental objects based on a hedonic model using micro‐level quotes on rental and sale listing. Exploiting the temporal, regional, and object‐specific variation generated by the design of the rent control, we identify a causal negative effect of the rent control on the yield of rental objects subject to the regulation. Furthermore, we zoom into the spillovers across regulated objects and objects in the affected markets that were exempt from the regulation and find rising yields for the exempted objects, suggesting that the regulation contributed to gentrification via a shift of rental housing supply away from the regulated segment.

Promoting a reputation for quality

AbstractI model a firm that invests in the quality of its product and influences how that quality is disclosed. The firm can promote its product; at random intervals it can disclose quality for a cost. At low reputations, promotion allows a firm to reestablish itself and the firm invests to take advantage of this. However, the ability to promote crowds out incentives for investment at high reputations generated by other information sources, in particular information that is generated whenever the firm is selling a low quality product, leading to reputation cycles in settings where high reputations would have otherwise persisted.

IMPACTS OF RISK PREFERENCE AND SOCIAL INSURANCE ON HOUSEHOLD FINANCIAL MARKET PARTICIPATION IN CHINA: ARE THERE DIFFERENCES BETWEEN URBAN AND RURAL RESIDENTS?

This letter examines the impact of risk preference and social insurance on household financial market participation and diversification using the 2017 and 2019 China Household Finance Survey. A multi-value treatment model is used to address the selection bias between risk preference and household financial investment, considering the moderation role of social insurance in between. Overall, our results show that high-risk takers are more likely to participate in the financial market and diversify their portfolios than low risk takers. Focusing on rural and urban differentials, we find marked differences in the impacts of risk preference and social insurance on household financial investment. Having social insurance may widen the difference in investment decisions between high- and low-risk takers in urban areas; the latter group tends not to participate in or diversify when socially insured. In contrast, having social insurance encourages low- and intermediate-risk preferred rural households to participate in the financial market and diversify their financial portfolios. Our work highlights the different consequences of social insurance on investment incentives of the rural and urban households. Whilst the obvious benefits of having social insurance for rural households via risk-sharing, there is undesired consequence of incentive distortion of urban households.

Empowering renewable energy consumption through public-private investment, urbanization, and globalization: Evidence from CS-ARDL and NARDL

This study examines the interrelationship among public-private investment, urbanization, globalization, and renewable energy consumption in the BIMSTEC nations for 1995–2021. The study implemented linear and nonlinear frameworks to document the magnitudes of explanatory variables on REC. Referring to the study findings with CSD, CIPS, CADF, and PCT disclosed the presence of cross-sectional dependency; variables are integrated after the first difference, i.e., I (1), and long-run association. According to symmetric and asymmetric coefficients, Public-private partnerships and globalization have emerged as significant catalysts for developing renewable energy sources. At the same time, urbanization is exposed to an adverse tie with REC, especially in the long-run. Based on the abovementioned findings, the study presents crucial policy recommendations to facilitate the expeditious transition to renewable energy within the BIMSTEC nations. Policymakers should prioritize the cultivation of robust public-private partnerships, the provision of incentives for investments in renewable energy, and the formulation of comprehensive regulatory frameworks.

Türkiye’de Yatırım Teşviklerinin Bölgesel Gelişmişlik Farklarını Azaltma Konusunda Etkinliği

This study aims to determine to what extent the investment incentive system implemented in Türkiye effectively reduces regional development disparities. For this purpose, more than 100,000 investment incentive certificates issued between 2001-2022 are examined. The Logarithm Methodology of Additive Weights (LMAW) determines the criteria's importance and ranks the provinces' investment performances. The results obtained indicate that investment incentive applications cannot provide sufficient effectiveness in reducing regional development disparities. In this respect, there is a severe need for revision in the incentive policies currently implemented.

Can Investment Incentives Crowd Out Innovation? Evidence from China

Can Investment Incentives Crowd Out Innovation? Evidence from China

Economic Crisis of Bangladesh's RMG Sector Effect of Government Borrowing to Meet the Budget Deficit

The economic crisis in Bangladesh's real estate industry sector is a cause for concern as it is heavily affected by the government's borrowing to meet the budget deficit. The high level of debt has led to inflation and a decrease in consumer spending, which has harmed the real estate market. Developers are struggling to find buyers for their properties and are facing financial difficulties as a result. The government should consider implementing policies to address the budget deficit and reduce the burden on the real estate industry. This could include measures to increase revenue through tax reform and reducing government spending. Additionally, the government should also focus on providing incentives for investors to invest in the real estate market, such as tax breaks and subsidies. Overall, addressing the budget deficit and providing support to the real estate industry is crucial to ensuring the stability and growth of the economy. The majority of the government's revenue comes from taxes, VAT, and the domestic sale of bonds and certificates of deposit, making it one of the largest corporations in any nation's financial industry. There are three organizations through which governments may occasionally borrow money from other nations: the World Bank, the IMF, or LIBOR London Inter Bank. To close the budgetary gap, higher-rate borrowing will be necessary. Estimating income and expenses before making any purchases or placing anything on the market is the primary tenet of a budget.

Carbon pricing – perceived strengths, weaknesses and knowledge gaps according to a global expert survey

Researchers from different disciplines have different opinions about carbon pricing. To better understand the reasoning behind these perspectives, we utilize responses to three open-ended questions from a global survey among almost 800 researchers from a wide variety of fields who published on climate policy. Using methods from computational linguistics, we classify reflections of researchers on the main strengths and weaknesses of carbon pricing compared with other policy instruments in seven and six topics, respectively. The results indicate that the main perceived strengths of carbon pricing are that it is effective and efficient at reducing emissions, gives clear investment incentives, decentralizes policy, among others. The main perceived weaknesses of carbon pricing are related to its potentially regressive effects on households, low social-political support, and amenability to manipulation—to name a few. Surprisingly, not all these perceptions are in line with established theory and empirical evidence. Finally, we collect suggestions for future research. Among nine frequently mentioned themes are improving public understanding of carbon pricing, political acceptability, synergies with other policies, long-term effects, and implementation in an equitable way in developing countries and worldwide. In addition, we highlight several less frequent but arguably innovative research avenues. Finally, we report to what extent the identified topics on strengths, weaknesses and knowledge gaps are significantly related to academic experience, gender, GDP per capita in the countries of origin and residence of the survey participants, and perceived importance of carbon pricing. This information helps identifying key differences in views within the scientific community on carbon pricing and can guide communication between fields aimed at reaching more consensus on climate policy.

Financial policy competition neutrality and the efficiency of outward foreign direct investment

Outward foreign direct investment is an important way for enterprises to participate in international economic cooperation and competition and to build a global “community of interest” and “community of destiny”, and it has become a key issue of concern and research in the academic world. However, existing studies have paid less attention to the willingness or motivation mechanism of OFDI, especially the lack of in-depth research on which motivational factors can drive enterprises to implement OFDI and effectively improve its efficiency. Therefore, based on the capital level perspective, this paper empirically finds, with empirical evidence from Chinese listed multinational corporations from 2009 to 2022, that competitive financial policy neutrality significantly improves OFDI efficiency; at the same time, the capital level strengthens such a facilitating mechanism. The findings provide practical guidance for the government to pay sufficient attention to financial policy competitive neutrality and perceive the incentives of firms' outward investment.

SDG 2 – ending hunger: the effect of Nigeria’s land titling on production output and food security of farming households

Achieving zero hunger is intricately linked to sustainable agricultural production and the workings of a farming system. With land being the most important resource in smallholder agriculture in developing countries; including Nigeria; the effect of legal land ownership is a sine qua non for the process of achieving zero hunger in Nigeria. This study examined Nigeria’s attempt at making agricultural land both accessible and utilizable for smallholders in Nigeria through the Presidential Technical Steering Committee on Land Reforms in 2009. The aim was to explore the extent to which land ownership had become legalized; so that it had positive investment incentives for smallholder farmers to improve their investment portfolio on their holdings. A secondary dataset of 4,032 respondents obtained from the Living Standard Survey Integrated Survey on Agriculture (LSMS/ISA) of the 2018/2019 season, was used for the study. Data analysis included descriptive statistics and a 2-stage least square model. The apriori being that legal land ownership provided a perception of security that would enhance farm-level investment; which would therefore increase production output and hence food security. The findings revealed that although land titling was low (~12%) within the agricultural system; its return on production output was highly significant (5.3; p < 0.05). The possession of land title would also increase per capita food consumption expenditure (0.35; p < 0.05) among the farming households. On average, households with access to land titles had a significantly higher (at p < 0.01) food expenditure (N9, 868.00) than those without land titles (N6171.72). Other farm-level investment variables such as credit use, and mechanization through tractor use were significant in improving food security amidst the security presented by possession of land title. Thus, expediting the implementation and coverage of formal land registration and titling may be a first step to contributing meaningfully to the food security drive of the SDGs in Nigeria.

Investigating the Nexus Between Foreign Direct Investment and Sustainable Energy Transition: The Case of Vietnam

This study investigates how foreign direct investment (FDI) has impacted Vietnam’s sustainable energy transition from 1988 to 2020, utilising the autoregressive distributed lags (ARDL) technique for analysis. In the short term, a 1% increase in FDI is linked to a minor 0.015% reduction in the quality of energy transformation, indicating initial adverse environmental effects. However, in the long term, a notable improvement of 0.042% in energy transformation quality suggests that FDI-driven initiatives positively contribute to sustainable energy practices. Simultaneously, other factors such as the Consumer Price Index (CPI) demonstrate detrimental impacts both in the short term (0.039% decrease) and the long term (0.429% decrease), posing challenges to environmentally friendly projects. Conversely, the Green Economic Growth Index displays significant positive effects in both the short term (0.397% increase) and the long term (0.184% increase), emphasising the importance of fostering green economic growth. To accelerate the progress of sustainable energy transition, Vietnam is encouraged to implement policies encompassing the digitization of green initiatives, the introduction of green financing mechanisms, and the provision of supportive incentives for environmentally-conscious investors.

Impact of COVID-19 on migrant remittances in South Asia

ABSTRACT This paper investigates the impact of COVID-19 on remittance flows to South Asia. Using a monthly panel data set of five South Asian countries (namely Bangladesh, India, Nepal, Pakistan, and Sri Lanka) for the period January 2020 to August 2021. This study, applying the pooled ordinary least square estimation method, generally, finds a positive impact of COVID-19 on remittance flows to South Asia. Further investigation reveals the existence of a non-linear (inverted U-shaped) relationship between COVID-19 cases and remittances. This means that with the initial covid spread leading to temporary restrictions affecting economic activity in home countries, remittances start increasing to support families’ income and consumption affected by the regulations. However, the very high levels of infection rates leading to continued lockdowns in home countries decrease the incentives for investment with substantially reduced economic activities, thus decreasing aggregate remittances. We found similar results when replacing infection rates with deaths from COVID-19. However, increasing COVID-19 infection rates and deaths in migrants’ host countries reduce remittances to migrants’ home countries.

ІНТЕГРАЦІЯ ЦИФРОВИХ ТЕХНОЛОГІЙ ТА ЦИФРОВИХ ДЕРЖАВНИХ ПОСЛУГ У МОДЕЛІ ЦИФРОВОЇ ЕКОНОМІКИ

The article explores the relationship between digital technologies, digital public services and the digital economy model. Key aspects of integrating these elements are analysed, such as the development of infrastructure, the creation of digital platforms, and the development of the Ukrainian IT sector. Special attention is paid to the impact of digital transformation on the efficiency of public administration, the lives of citizens and the development of the national economy. The study predicts both positive aspects of digital transformation and pessimistic scenarios related to uneven access to digital technologies, the digital divide and the need to develop digital public services. Based on the analysis, recommendations are formulated for further developing the digital economy and optimising the interaction between the state, businesses and citizens in the digital environment. Digital transformations of Ukraine's economy can ensure the stability and growth of financial revenues necessary for post-war reconstruction. Digital solutions are of financial and strategic interest, as they can increase the efficiency of the industries into which they are integrated into the government and military sectors. According to the study results, the development scenarios of each component of the descriptive model of the digital economy of Ukraine were determined. The Ukrainian IT industry is the engine of the digital economy and has demonstrated its resilience even in wartime. The industry continues to fulfil contracts and export services, provide foreign exchange earnings, and support the economy. Today's performance in IT is much better than in other industries, largely due to its mobility, flexibility and ability to work remotely. While the country is rebuilding, the Ukrainian IT industry will be able to ensure its economic stability largely. But for this, you need a concrete plan for supporting the industry, which it needs for development. They mean economic levers and incentives for investment, development of education, etc. The government directs efforts to integrate Ukraine into the EU’s Single Digital Market, build digital infrastructure, attract investments, and provide citizens with critical services and data, thus ensuring uninterrupted communication for the safety of citizens, which is the key to the digital stability of the economy. Despite the state of war, it pays attention to supporting the IT industry.

ПОТЕНЦІАЛ ТА ПЕРСПЕКТИВИ РОЗВИТКУ АГРАРНОГО СЕКТОРУ УКРАЇНИ В УМОВАХ ВОЄННОГО СТАНУ

The article studies the potential and prospects of development of the agricultural sector of Ukraine, taking into account the conditions and consequences of the martial law. It is established that the war has caused a number of crisis phenomena in the Ukrainian economy, negatively affecting the state of the Ukrainian agricultural sector and its export capacity. In 2022, Ukrainian agricultural exports in dollar terms decreased by 16% compared to 2021, and by another 7% in 2023. The war has caused changes in the regional structure of Ukrainian exports. The reason for these changes was the blockade of Black Sea ports and the need to establish alternative shipment routes. Logistics costs have increased by an average of 5 times, while prices for agricultural products in the domestic market have fallen. In addition, the agricultural sector is significantly affected by labour shortages. In 2024, compared to 2021, the number of working-age people in Ukraine decreased by 40% due to extremely complex demographic processes. However, Ukraine's agricultural sector has significant potential for development due to: favourable natural and climatic conditions and fertile soils; favourable geographical location and proximity to major markets; availability of skilled labour and scientific and technical potential; and opportunities for innovation and digitalisation in agriculture. The main promising areas for developing the potential of Ukraine's agricultural sector: 1. Diversification of production – expanding the range of crops and products, including organic and high value-added products. 2. Implementation of innovations and digitalisation – application of the latest technologies, precision farming, and robotics to improve production efficiency. 3. Development of agricultural infrastructure - modernisation of elevators, warehouses, and logistics for storage and transportation of products. 4. Government support and regulation – preferential taxation, access to finance, investment incentives, and the fight against corruption. 5. Greening and sustainable development – implementation of environmentally friendly technologies, rational land use, environmental protection.