Foreign direct investment in Southeast Asia: - Regional Office China

unido.org.cn

Foreign direct investment in Southeast Asia: - Regional Office China

industrial sector and sub-sector level; and v) the firm level of organisationalstrategy and competitiveness. The complexity of FDI host policy-making isobvious, but the policy dimensions that are chosen should be in harmonywith the country’s wider development goals.Ultimately, it could be argued that all these dimensions distill into onedimension regarding incentives. In fact, incentives can be fiscal or non-fiscal[UNIDO (2003)], as selectively illustrated in the Table 1 below. As we cansee, non-fiscal incentives are constituted by financial and non-financialincentives.Table 1: Fiscal and Non-Fiscal IncentivesFiscal incentivesTax holidaysTax-free importsTax exemptionsNon-Fiscal incentivesDepreciation methodsDevelopment Banks’ loan policiesR&D supportEnvironmental standards supportLabour training supportGovernment subsidiesThe presentation noted that whereas industrialised countries typically utilisefinancial incentives, such as grants, developing countries usually use fiscalincentives, such as reductions in the base rate of corporate income tax, taxholidays and import-duty exemptions and drawbacks [Oman (2000)].Incentives are widely used to attract MNEs and thus create a climate ofcompetition for FDI. Fiscal incentives may be successful in attracting MNEs,but incentives-based competition also creates some problems. Indeed, thefirst problem of incentives is that they represent an opportunity cost for hostgovernments. Secondly, there can be a significant lack of transparencyregarding incentives, which leaves space for corruption and other kinds ofrent-seeking behaviour. Finally, given the dimension choices in Figure 2,incentives also provoke market distortions. The major distortions are thatincentives tend to favour large corporate investors, at the detriment of smallfirms, as well as foreign over domestic companies, partly because of theirlower risk profile and higher bargaining power. This distortion would tend todisappear (over time) in countries adopting fourth generation investment25

More magazines by this user
Similar magazines