Incentives to Attract Foreign Direct Investment

Abstract

The aim of this paper is to present and analyze different types of incentives that countries use to attract foreign direct investments. The aim of attracting foreign direct investments is to achieve a higher level of economic development and social welfare. Investment incentives are used by developing countries as well as developed ones. There are various types of incentives such as fiscal, financial and regulatory incentives. The author attempts to determine the justification for the use of incentives, but also attempts to state the reasons why their use is not justifiable. The paper also points out the situation in which investments are profitable only until the incentives last, meaning that incentives themselves can be very expensive and inefficient for the host country. Approval for incentives to attract FDI is usually motivated by the desire to achieve spillover effects in the countries receiving the investment, such as transfer of new technologies, know-how, increase of competitiveness, etc. Those investments that are expected to have the strongest spillover effects are therefore the ones that need to be attracted. The rules of the law of the Republic of Serbia which regulate a variety of incentives to attract investments are also the subject of this analysis. The methodological approach for this research includes using different methods such as the comparative method, the normative-dogmatic method as well as the analytic-synthetic approach.