The OECD Network of Foreign Direct Investment

• Activity Number: 391
• Type: Topic Contributed
• Date/Time: Tuesday, July 31, 2012 : 2:00 PM to 3:50 PM
• Sponsor: ENAR
• Author(s): Anton Westveld*+ and Nathan M. Jensen and Andrew D. Martin
• Companies: University of Arizona and Washington University in St. Louis and Washington University in St. Louis
• Keywords: Bayesian inference ; foreign direct investment ; longitudinal data ; social network data ; tax policy

Abstract

An extensive literature in international and comparative political economy has focused on the effects of the mobility of capital on governments' ability to tax and regulate firms. The conventional wisdom holds that governments are in competition with each other to attract foreign direct investment. Nation-states observe the fiscal and regulatory decisions of competitor governments, and are forced to either respond with policy changes or risk losing foreign direct investment (FDI), along with the politically salient jobs that come with these investments.

We propose an empirical strategy to examine whether tax differentials among nations affect FDI flows by modeling investment patterns in 28 advanced industrialized countries from 1989 - 2009. Using bilateral FDI flow data, we examine the nature of the investment network in relation to a set of covariates - in particular tax rate differentials. Our approach differs from the previous research in the area by formally modeling the network nature of the data, as well as accounting for the fact that the data naturally arise from two sources. One set from investing nations, another from host nations; the two can be quite discrepant.