SEEU Review vol. 6 Nr. 2 (pdf) - South East European University

SEEU Review Volume 6, No. 2, 2010(Bénassy –Quéré, Fontagné and Lahréche –Révil 2003), have shownempirically that high relative corporate taxation does discourage FDIinflows. Therefore, although market potentials do matters, corporate taxdifferentials also play a significant role in driving FDI flows. (Buettner2002) has found that an increase in the difference between the statutory taxrates in the home country is related with an increase in FDI outflows.Openness to foreign trade has a positive and highly significant impact onFDI inflow. This result is in the same line with the work of (Jaumotte 2004),that have found that trade has a positive impact on the FDI.Labor cost has a negative significant impact on FDI, results that supportthe idea that FDI in developing countries are attracted by low labor cost.This result is supported by (Bevan and Estrin 2000), that have foundempirical evidence that the unit of labor cost is negatively associated withFDI.EBRD infrastructure index is positively and highly significant related toFDI inflows. (Ghinamo, Panteghini and Revelli 2007), have found in theirwork evidence of positive and highly significant impact of this variable.ConclusionThe importance of using tax incentives in order to attract more FDIinflow in transition economies has increased with globalization process. Butfiscal incentives cannot substitute for other important factors that affect FDIflows, such as stable macroeconomic environment, this conclusion isconsistent with that drown by (OSCE 2003), that state that the usage of taxincentives, is no substitute for pursuing the appropriate general policymeasure.Even though the low statutory corporate tax rate applied in Albania thevolume of FDI inflow is among the lowest compare to regional countries.From the analyze made resulted that regional countries despite the statutoryrate that were comparable with the rate applied in Albania use also otherincentives such as tax holiday, accelerated depreciation methods anddeduced rates, that have significant impact on taxable base. From theperspective of other taxes that may affect FDI decision such as indirect taxVAT in Albania is a little bit higher relative to neighbor countries, we alsodo not use the two tail VAT system that in other countries is applied.147