|IPA Sector Targeting * Country 23|-0.105<br>-0.0955|
|---|---|
||-0.255|
|IPA Sector Targeting * Country 24|-0.281**|
||-0.136|
|IPA Sector Targeting * Country 25|-0.376*|
||-0.224|
|IPA Sector Targeting * Country 26|-0.515***<br>-0.198|
|Country-Pair F.E.|YES|
|<br>Source-Year F.E.|YES|
|Host-Year F.E.|YES|
|Sector-Year F.E.|YES|
|Host-Sector F.E.|YES|
|Constant|1.247***|
||(0.00544)|
|Observations|86,148|

Note: Robust standard errors in parentheses, clustered at the country-pair-sector level. FDI stock is defined at the bilateral, sectoral level in USD Million (Logged) in constant 2018 terms. Green-highlighted fields indicate countries with positive, statistically significant IPA effects at the 10 percent level or higher. PPML = Poisson pseudo-maximum likelihood estimation. IPA = Investment Promotion Agency. F.E = Fixed Effects. *** p<0.01, ** p<0.05, * p<0.1

# **5.2 Characteristics of effective IPAs**

## **General Characteristics and Institutional Arrangement**

A comparison of the two groups finds that high-performing IPAs are found across different regions and income levels. As shown in Table 8, IPAs with sectoral targeting strategies are found to be significant predicters of increasing FDI stock across Europe, Asia and the Americas, and their prevalence is not unlike those of the group of other IPAs.<sup>6</sup> Similarly, we see that across the two groups there is a broad division of IPAs across income levels, suggesting that effective IPAs are not only present in high-income countries but can also be developed in developing countries.

Yet, when considering their institutional arrangement, the type of agency and their board of directors are both significant predicters to whether an IPA is in the high-performing group. High-performing IPAs are much more likely to be part of a private or semi-private agency, while other IPAs are more likely to be part of a government agency (a significant difference at the 5 percent level). Another striking finding is that 80 percent of IPAs in the effective group have a board of directors, while only around 40 percent of other IPAs have such a board (significant at the 10 percent level). For those IPAs that do have a board, high-performing IPAs also have a considerably higher average share of private sector representatives (58 percent, versus 38 percent in other IPAs). However, this result is not statistically significant due to the relatively small number of IPAs in both groups. Both of these findings are aligned to the predictions by Heilbron and Kronfol (2020) around the importance of (semi)-autonomous IPAs with close connection to the private sector.

For the sub-national dynamics, half of both groups have national IPAs with regional offices, while around a third have separate sub-national IPAs operating independently. While this leaves only a very small group to study, it is striking that all high-performing IPAs that also have a sub-national IPA in their country report to having a close, systematic working relationship with them that includes regular joint activities and information sharing. In contrast, other IPAs were split in their responses and may have had only regular but ad hoc, or occasional contact with subnational IPAs. These results thus seem to imply that close coordination is important for effective IPAs, but due to the sample size of IPAs with sub-national, no statistically significant findings are present.

## **Strategic Alignment and Focus**

Table 9 considers the strategic alignment of IPAs in both groups. Interestingly, this finds that there is no significant difference in the number of sectors targeted between high-performing IPAs and other IPAs. Yet, this first group may be slightly more likely to dedicate at least half of their resources to priority sectors (90 percent) versus other IPAs (70 percent). There also seems to be no significant difference in how both groups select their priority sectors, as

> 6 One exception is that no African IPAs are in our group of effective IPAs. However, this may be partly due to the small number of such countries in our sectoral FDI database.

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