Mooij and Ederveen (2008) based on 427 individual estimates, the mean semi-elasticity of FDI to tax rates is -3.3 (a 1 percentage-point increase in a tax measure in a certain location reduces foreign investment by 3.3%), the median is –2.9 and the standard deviation of 4.4 suggesting that the variation across studies is large. The elasticity of FDI to tax rates is usually negative and of an order of magnitude of – 0.6 in time-series samples but from –1.0 to –2.8 in cross-sectional estimates, which provide a much wider range of estimates (Desai and Hines 2001). Bénassy-Quéré, Fontagné and Lahrèche-Révil (2006) use a panel of bilateral FDI flows across 11 OECD countries over 1984-2000. They find that (i) although market potential do matter, corporate tax differentials (captured through four different measures) also play a significant role in driving FDI flows; (ii) this impact is not symmetric since low tax rates fail to significantly attract FDI while higher taxes tend to discourage new FDI inflows; (iii) the composition (and not the level) of public expenditures matters. A higher provision of public investment expenditures has a positive impact on FDI flows.

The remainder of this section focuses on empirical studies of the elasticity of FDI with respect to both CIT and tax incentives in emerging and developing countries.<sup>15</sup> Azémar and Dalios (2008) focus on **Japanese firm implantation over 1990-2000 in Africa, Latin America and Asia** . The vector of control variables used in the estimation includes measures of market size, GDP per capita, trade openness, an East Asia and Pacific dummy, the cost of production and the quality of institutions. A random negative binomial model is used in order to tackle the traditional concerns in panel data. Their results are the following: (i) Japanese firms implantations in developing countries are strongly and negatively influenced by the level of statutory tax rates in host developing countries. (ii) Investors from Japan, a tax credit country, do not react to tax rates in the same way in all developing countries (when a tax sparing agreement is signed between Japan and a developing country, corporate income tax has no impact on the locational decisions of Japanese firms). (iii) The inclusion of an interaction term between taxes and public goods (proxies for level of education, infrastructure and health) on the one hand, and between taxes and public governance on the other hand, shows that increasing the quantity of public goods and the quality of governance reduces the impact of the statutory tax rate on the location choices of Japanese firms. These results are consistent with those of related empirical studies dealing with the determinants of FDI in developed countries (see above). Furthermore, it appears that low tax rates can help to offset disadvantages in terms of market potential in the host country and that “productive” public expenditures have a positive and significant impact on FDI bilateral inflows which in turn runs encounter to the “race to the bottom” concern.

Banga (2003) analyzes the **determinants of FDI inflows into 15 developing countries of South, East and South East Asia over 1986-1997 and, separately, for FDI coming from developed and developing countries into 10 developing countries of the same region for 1986-1997** . Some interesting conclusions can be drawn from the econometric test based on a random effect model: ( _i_ ) Economic fundamentals (large market size; low labour cost; education and productivity of the labour force, quality of transportation and communication) are found to be significant determinants of aggregate FDI. However, these factors differs in terms of significance in attracting FDI from developed and developing countries; ( _ii_ ) After controlling for economic fundamentals, FDI policies and lower tariff rates attract aggregate FDI inflows. However, lower tariffs are significant determinants of FDI from developing

> 15 We are mainly surveying large sample-based studies. For an example of sub-regional study, see e.g., Fletcher (2002) who studies the impact of tax incentives on FDI in the Mekong region.

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