Finally, Gómez‐Mera and others (2015) analyze surveys of 713 investors, potential investors and non‐ investors from emerging economies (Brazil, India, South Africa, and the Republic of Korea). They suggest that investment promotion agencies appear to be a widely used and a helpful resource for investors once they have made the decision to enter a specific market. Almost 70 percent of firms with investment in developing countries reported having relied on the services provided by agencies upon deciding to invest. Key services they valued were the provision of information about procedures and regulations of doing business, as well as corporate taxation and incentives. Furthermore, investment promotion agency services tend to be more valuable for smaller and less productive firms, for which access to information is more costly. One concern revealed by the survey is that investment promotion agencies play only a marginal role in raising awareness of investment opportunities in developing countries. Less than 2 percent learned about such opportunities directly from agencies.

# _b. Lures and caveats of investment incentives_

_Locational incentives._ In 2013, investment incentives accounted for 55 percent of the liberalization, promotion, and facilitation measures adopted by countries to attract FDI. Tax incentives constituted more than half of these measures (UNCTAD 2014). The type of incentives used vary between Organisation for Economic Co‐operation and Development (OECD) and developing countries. Tax holidays are most prevalent in East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, and South Asia, and least prevalent in OECD countries (James 2013).

Research on locational tax incentives in developing countries has centered on an assessment of fiscal costs and their effectiveness as a determinant in attracting FDI. Studies have found that costs of locational tax incentives can be high. However, more importantly, their effectiveness tends to be offset by a bad investment climate in host countries. For example, Rwanda and Sierra Leone devote more than one‐third of their tax revenues to investment incentives (James 2013). Yet FDI linking these countries with global value chains has been extremely limited due to many variables that negatively impact the investment environment.

Tax incentives are less effective under unattractive investment climate conditions, such as poor infrastructure, macroeconomic instability, and weak governance and markets. Investment climate advisory research (James 2013) shows that lowering the marginal effective tax rate from 40 to 20 percent raises FDI by 1 percent of GDP for countries ranked in the bottom half of the World Bank’s _Doing Business_ indicators. However, it has an eight times greater effect for countries in the top half. Investment climate conditions are one possible reason that some countries do much better when using fiscal incentives policy to attract investment.

Many studies of tax incentives have also focused on OECD countries. For example, a meta study by De Mooij and Ederveen (2008) found that, on average, a 1 percentage point increase in the tax rate reduced FDI by 3.3 percent. There is also a wide range of elasticity of tax effects on FDI. In this context, most studies find that higher tax rates (including effective average tax rates, effective marginal tax rates, and statutory tax rates) have a significant negative impact on FDI. Desai, Foley and Hines (2002) conclude that 10 percent higher corporate income tax rates are associated with 5 percent lower FDI by American‐owned foreign 14