unemployment rate) transportation, finance, insurance and real estate industries.

# _a. Targeted investment promotion_

A well‐organized, strategically pro‐active investment promotion agency can provide an important boost to FDI. Using data from 124 countries, Harding and Javorcik (2011a) find that the presence of an investment promotion agency is correlated with higher FDI inflows, particularly in sectors targeted by the agency. Investment promotion agencies tend to have a positive impact in developing countries —but not industrial countries. In this context, they perform better in places with higher information asymmetries and more red tape, suggesting that the provision of professional information and services (compensating for deficiencies of bureaucracies) by investment promotion agencies can lead to greater FDI.

A rough cost‐benefit analysis finds that targeted sectors in developing countries receive more than twice as much FDI as non‐targeted sectors, and that the average investment promotion agency spends $90,000 per sector targeted. Together these estimates suggest that, in certain circumstances, every dollar spent on investment promotion may increase FDI by $189. Every additional job created by a foreign affiliate requires $78 in investment promotion spending. These estimates should be interpreted with caution as they are not only very rough figures, but contingent on a series of variables that may not always be easily replicable. They do, however, suggest that investment promotion can be cost‐effective. Another important additional caveat of the study is that it does not fully address the possibility of selection bias, namely that the sectors targeted by investment promotion agencies were initially chosen based on their higher potential for attracting FDI. However, the authors do conduct a number of important checks to minimize these risks.

Harding and Javorcik (2011b) use data about 156 countries from the World Bank’s Global Investment Promotion Benchmarking (GIPB) series for the years 2006‐12 to assess how the quality of investment promotion agencies affects FDI. Their analysis finds that countries with investment promotion agencies able to handle investor inquiries in a more professional way and with higher‐quality websites tend to attract more FDI. A country with a GIBP quality score<sup>3</sup> of 60 percent received, on average, 25 percent more FDI than a country with a score of 45 percent. All else being equal, countries with agencies with the average GIPB score of the Latin America and the Caribbean region received 40 percent more FDI than did countries for which the GIPB score was the equivalent average for Sub‐Saharan Africa.

Using a sample of 105 countries, Harding and Javorcik (2013) find that FDI targeting by investment promotion agencies can be used to attract efficiency‐seeking FDI. It can also raise the quality of exports from the host economy. They observe increases in the unit values of exports from sectors considered priorities in efforts to attract FDI. These results suggest that host countries can use foreign investment to raise the quality of exports both in absolute terms, as well as in terms of bridging the distance to the frontier of higher quality.

> 3 The score is measured using the GIPB results obtained for GIPB 2006, GIPB 2009 and GIPB 2012.

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