This study analyzes the impact of foreign aid on foreign direct investment (FDI) inflows in selected countries in East Asia and South Asia -two regions that have received huge foreign aid as well as FDI inflows. Theoretically, foreign aid can either facilitate FDI by funding projects that raise the marginal productivity of capital, or crowd out FDI as the number of investment opportunities in developing countries is usually limited. Using the FGLS (Feasible Generalized Least Squares) panel estimation methodology with 1995-2012 panel data from 7 East Asian and 7 South Asian countries, this study finds that the impact of foreign aid on FDI is significantly positive and robust across several model specifications. The estimated results also suggest that FDI is significantly affected by corruption control, rate of return, infrastructure, human capital, market potential, and political stability, and East Asia enjoys a locational advantage in attracting FDI vis-à -vis South Asia. These results further our knowledge of the foreign aid-FDI dynamics in developing countries.
Subnational business taxes 227Do subnational business taxes reduce a region's competitiveness?A computational general equilibrium analysis Abstract Purpose -This paper's purpose is to investigate the claim that capital taxes imposed by a subnational government reduce the economic competitiveness of the geographic area in which these taxes are imposed. Design/methodology/approach -A two-region, four-good, three-factor computational general equilibrium model of the USA is constructed. Simulations are performed to represent US state governments replacing wage taxes with capital taxes. Findings -Household utilities rose when wage taxes were replaced by capital taxes, contradicting the conventional wisdom that capital taxes are harmful to a region's residents. Research limitations/implications -As with all computational economic models, there are simplifications in this paper's model that abstract from reality and may limit the applicability of model results to the real world. Practical implications -Subnational governments need not shy away from capital taxes when funding government programs. Originality/value -This paper contributes to the investigation of subnational tax incidence.
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