The negative effect of regulatory divergence on foreign direct investment [E-Book] / Jean-Marc Fournier
Fournier, Jean-Marc.
Paris : OECD Publishing, 2015
36 p. ; 21 x 29.7cm.
OECD Economics Department Working Papers ; 1268
Full Text
The determinants of foreign direct investment (FDI) are explored with gravity models, using a Poisson estimator and a linear estimator, both with fixed effects. The heterogeneity of product market regulations has a large and robust impact on cross-border investment: a reduction of regulatory divergence by one fifth could increase FDI by about 15%. In particular, the divergence of command and control regulations and of protection of incumbents (antitrust exemptions, entry barriers in networks and services) reduce cross-border investment. In addition, countries with higher employment protection have both less inward and less outward FDI, and there is some evidence that more complex regulatory procedures reduce inward FDI.