FOREIGN INVESTORS LOOK FOR EDUCATED WORKFORCE, SOLID INFRASTRUCTURE AND LEGAL
PROTECTIONS: CONFERENCE BOARD ANALYSIS

OTTAWA, Nov. 3 /CNW/ - Governments seeking to attract foreign investment should improve public infrastructure, spend on education and enact transparent governance and regulatory regimes, instead of promoting subsidies or tax breaks to investors, The Conference Board of Canada concludes in a new study released today.

The research, conducted for the Conference Board's International Trade and Investment Centre, reviews dozens of empirical studies on national and sub-national public policies and other factors that influence the decisions of investors. The report's main focus is to identify, summarize, and evaluate the empirical literature dealing with the determinants of inward foreign direct investment (FDI) and outward foreign direct investment (FDO), as well as "spillover" efficiency benefits from that investment.

"In general, transparent regulations, solid infrastructure and an educated workforce create a positive "framework" that is attractive to investors," said Steven Globerman, author of the report, Best Policy Practices for Promoting Inward and Outward Foreign Direct Investment.

"The most controversial element of foreign investment is tax policy. Although lower taxes would appear to be attractive to investors, reducing tax rates could actually discourage investment if they reduce governments' capacity to spend in areas that help increase productivity. There is no consistent evidence that fiscal concessions to foreign investors — such as special tax rates or subsidies — promote increased FDI in the longer run," said Globerman, Kaiser Professor of International Business and Director of the Center for International Business at Western Washington University.

The study identifies the major variables affecting foreign investment from previous empirical research, and classifies the variables into 11 broad categories. It also classifies the variables used in empirical studies of the "spillover" effects of investment (into six categories). The results of the studies are then assessed as showing a "positive", "negative" or "mixed" relationship.  

Variables that report a strong positive relationship to inward FDI include: large market size and high growth, exchange rate stability, socio-political stability, strong protection of property rights, government efficiency, quality physical infrastructure, active R&D capability, and a skilled and educated workforce. The research found that investment protection and foreign ownership restrictions have a negative relationship to FDI.

Government investment promotion agencies—when managed well—can educate foreign investors about the advantages of investing in a particular location, if promotion is done efficiently. An environment favourable to inward investment also promotes outward investment, because it strengthens the competitive advantages of domestic firms and allow them to expand internationally.

While only a dozen studies identified focused on Canada, the results were broadly consistent with the full sample of studies examined. In particular, domestic R&D activeness and an educated and skilled workforce encourage FDI in Canada. However, improvements to Canada's roads and ports (including land border crossings), and a greater emphasis on science and technical education, would increase Canada's attractiveness to foreign investors, as well as the benefits from foreign investment.

The report is published by The Conference Board of Canada's International Trade and Investment Centre [http://www.conferenceboard.ca/ITIC/default.aspx]. The centre is intended to help Canadian leaders better understand what global economic dynamics —such as global and regional supply chains, domestic barriers to trade, US policies, or tighter border security—could mean for public policies and business strategies.

For further information:

Brent Dowdall, Media Relations, Tel.: [phone] ext. 448
E-mail: [email protected]