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Investment Promotion Agencies: Do They Work?

Discussion Papers

No.272

by HAYAKAWA Kazunobu, Hyun-Hoon LEE, Donghyun PARK
December 2010

ABSTRACT

In this paper, we examine the role of investment promotion agencies (IPAs) in promoting outward FDI from Japan and Korea. Looking at two home countries enables us to control for both country-pair time-invariant characteristics and host country time-varying characteristics. Our empirical results suggest that home-country IPAs tend to be more effective in promoting outward FDI in politically risky host countries.
However, this finding depends on whether the home-country firm is listed or unlisted. More specifically, we find that the positive effect of home country IPAs on outward FDI in politically risky countries is limited to unlisted home- country firms, which are widely assumed to be less competitive and productive.

Keywords: FDI; Multinational firm; Firm heterogeneity; Investment promotion; Firm behavior
JEL classification: F21, F23, D22

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