Date of Submission
Campus Only Senior Thesis
Bachelor of Arts
© 2020 Chahat Kaur
Previously reported effects of institutional quality, macroeconomic conditions and taxation on foreign direct investment (FDI) are conflicting. Some studies suggest institutional and macroeconomic variables trump tax incentives, whereas other studies suggest the contrary. This paper studies case studies of India, China and Brazil and uses data for up to 50 years to present empirical evidence on which variable is relatively more influential for attracting foreign investments. I control for institutional and macroeconomics variables and study the effects of taxes on FDI. The tax variables include corporate income taxes, short term capital gains tax, average effective tax rates and a dummy variable tracking changes in value added tax and custom and excise duties. Findings suggest that when corporate income taxes decrease at host countries, there is a clear spike in foreign interest; however, taxation is not the prime motivator for FDI inflow. Since the 2020 pandemic appears to have hampered FDI inflow, I use my findings to recommend future policies that host countries could implement to revive FDI inflow post-covid-19.
Kaur, Chahat, "What Attracts Foreign Direct Investment to Developing Countries: Cases of Brazil, China and India" (2021). CMC Senior Theses. 2531.
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.