Investment promotion: How governments compete for foreign direct investment

This thesis examines the role of investment promotion in the competition among governments for foreign direct investment. It explores the strategies and techniques governments use to attract investment, the structure that is most suited to investment promotion, and the effectiveness of the promotion function. Further, it analyzes, using aggregate data on fifty countries, the relationship between investment promotion and inflows of direct investment, and finds a statistically significant relationship.;An efficient promotion program is both effective and cost-effective, but only in attracting export-oriented investment. The direct benefits of export-oriented investment attracted through such a program typically outweigh the costs of attracting the investment. An efficient promotion program is also shown to be less costly than a program of tax holidays.;In order to make an investment promotion program efficient governments should view investment promotion as a type of industrial marketing. Like the industrial buying decision, impersonal promotional techniques are shown to be more effective at the early stages of the investment decision, whereas more personal promotional techniques are shown to be effective later in the investment decision. Accordingly, promotional agencies should first use impersonal techniques to build an image of their country's investment climate, to investors in the early stages of the investment decision, and then seek to generate investment directly, through more personal selling techniques. The extent to which image-building activities should be targeted at specific groups of investors is a function of the country's level of development, and its prior success in attracting foreign investors.;The organization given the mandate to manage a country's investment promotion program should be able to handle well tasks that are normally associated with the government, and also activities more typical of the private sector. Quasi-government agencies that report to the government but are more flexible and autonomous than conventional government organizations seem to handle well both the more public and the more private tasks of investment promotion.;Efficient investment promotion programs also have integrated management control systems that include information, motivation, and evaluation components, and that operate from the presumption that an investment can be tied to the efforts of a particular promoter.