THE IMPACT OF TAXATION AND AGGLOMERATION ECONOMIESON FDI

This paper aims at extending the empirical literature on foreign direct investment(FDI) determinants by examining how FDI reacts to corporate tax rates andwhether this reaction is conditional on some other economic factors, such asagglomeration economies. To that end, we gather the relevant data on developedmarket economies and employ an appropriateeconometric technique (PooledMean Group- PMG estimator) which allows for both dynamics and parameterheterogeneity to be included in the model. Our results suggest that both taxationand agglomeration economies play an important role in attracting FDI