FDI, the Role of Policy
1. What are the two usual ways foreign investment enter a country? Which one of the two ways is less risky and why?
2. What are the kinds of incentives offered by various countries to attract FDI? Provide examples of incentives by different countries.
? Countries offer incentives like tax concessions, tax holidays, tax credits, accelerated depreciation, export subsidies, import entitlements, and subsidized utility rate to attract FDI.
? The People’s Republic of China offers income tax exemptions to foreign enterprises on the first and second years, and 50 percent income tax reduction from the third to fifth years.
? Thailand allows duty exemptions on imported raw materials and capital goods from FDI projects location in export processing zones
? Viet Nam also provides duty exemptions on imported capital goods and lower water and electricity rates for firms locating in export processing zones
3. What are the major factors that influence a foreign firm in selecting investment location?
? Size and expected growth of the market to be served
? Long term macroeconomic and political stability
? Skilled or trained workers
? Transportation and communications infrastructure
? Tax breaks and subsidies generally influence investments location decisions only at the margin
4. What are some of the policies that do not serve the interest of the host country on the long term?
? Policies ostensibly designed to maximize net benefits of FDI for recipient economies ignore their effects on incentives fo ...