Graduation Year

2021

Date of Submission

11-2020

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Janet Smith

Reader 2

Barbara Junisbai

Rights Information

© 2020 Chahat Kaur

Abstract

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.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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