Public Policies and FDI Location: Differences between Developing and Developed Countries

This paper examines the impact of three host country government policies (taxation, good governance, and infrastructure) on the host’s FDI stock. We focus on whether the impact of these factors differs depending on the level of development of the host country. The regression results indicate that FDI is sensitive to host country taxation in developed countries, but not in developing countries; FDI is sensitive to host country governance measures and corruption in both developing countries and developed, with a somewhat larger impact for developing countries; and FDI shows sensitivity to host country infrastructure quality in both developed and developing host countries.