tax obligations and foreign direct investment: new … · 2018-11-27 · tax obligations and...
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TAXOBLIGATIONSANDFOREIGNDIRECT
INVESTMENT:NEWEVIDENCEFROMSUB-SAHARANAFRICA
FRANCISK.ANDOH (PHD)DEPARTMENTOFAPPLIEDECONOMICS
SCHOOLOFECONOMICS
WILLIAMG.CANTAH(PHD)DEPARTMENTOFDATASCIENCEANDECONOMICPOLICY
SCHOOLOFECONOMICS
BACKGROUNDØThe role of FDI to economic development is welldocumented in the literature (see Hansen & Rand,2006)ØDespite its importance, FDI flows to SSA has beendeclining over the past decades.ØThe falling trends in FDI flows to Africa raises animportant question of what attracts and retainsFDI?
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2007 2008 2009 2012 2013 2014 2015 2016 2017
47.2
36.2
-18.9-5.7 -2.2 -0.1 -6.9 -3.5
0.1
AFRICA
BACKGROUND
ØThe eclectic paradigm (Dunning, 2002; 2000; 1979)
ØThe KC model by Markusen et al. (1996) and Markusen (1997, 2002) talksabout the movements of FDI.
ØThe KC model establishes that both horizontal and vertical motivationsemerge simultaneously to determine the direction of FDI.
ØThe role of taxation in all these continue to be a subject of controversyamong economists.
ØThe role of tax in driving FDI in Africa, no doubt, remains an empiricalquestion.
ØGovernments often offer friendly tax regimes to attract and maintain FDI inorder to reap benefits of FDI.
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BACKGROUNDØThese same economies largely rely on tax to generate theneeded revenue to finance development.ØThe tax regime may be too demanding, therebydiscouraging FDIs.ØIt is not clear how specific obligations of African taxsystems affect FDIs.ØThis study therefore seeks to examine the extent to whichtax obligations affects the ability of SSA countries to keepand maintain their stock of FDI.
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BACKGROUNDØThe study also attempts to identify the extent to which theeffects of tax obligations are moderated by key determinants ofFDI in SSA.
ØStudies examining the relationship between of tax and FDIabound.
ØHowever, aside being bias towards developed countries, theyprimarily focus on establishing the relationship between FDIand one category of tax or the other.
ØE.g. Hunady & Orviska (2014); Wolff (2007), Mutti and Grubert2004; Blonigen andWang, 2005; and Azemar and Delios, 2008
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StylisedFactsaboutFDIandTaxesinSSA
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0
20
40
60
80
100
120
140
AngolaBenin
Botswana
BurkinaFaso
Burundi
CameroonChad
Congo,Dem.Rep.
Congo,Rep.
Coted'Ivoire
EquatorialGuinea
EthiopiaGabon
Gambia,The
Ghana
Guinea-BissauKenya
Lesotho
Madagascar
MalawiMali
Mauritania
Mozambique
NamibiaNiger
Nigeria
Rwanda
Senegal
SierraLeone
SouthAfricaSudan
Swaziland
TanzaniaTogo
Uganda
ZambiaSSA
FDIStock PT NTP
0
100
200
300
400
500
600
700
800
900
AngolaBenin
Botswana
BurkinaFaso
Burundi
CameroonChad
Congo,Dem.Rep.
Congo,Rep.
Coted'Ivoire
EquatorialGuinea
EthiopiaGabon
Gambia,The
Ghana
Guinea-BissauKenya
Lesotho
Madagascar
MalawiMali
Mauritania
Mozambique
NamibiaNiger
Nigeria
Rwanda
Senegal
SierraLeone
SouthAfricaSudan
Swaziland
TanzaniaTogo
Uganda
ZambiaSSA
TPT
MethodologyandDataØThe study used a panel of 36 countries from SSA.
!"# = %" + '()*
(+,,"#.,,"# + /"# *
ØWhere ! is the stock of FDI, i=1,…36, t=2005,…,2016. X is a vector ofexplanatory variables and + is a vector of coefficients to be estimated.ØVariables captured by X includes LW, NTP, PT, LTP, NR, LY, LEX, LP
ØThe study also interacted the three tax variables with NR, LY and LEXØData was mainly sourced from UNCTAD, ILO, WDI, andWDBI
ØThe estimation technique used was based on the system GMM
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ResultsandDiscussionsFDIStock%GDP ProfitTax NumberofTaxes TimetoPrepareandPay
TaxMean N Mean N Mean N Mean N
Angola 48 12 25 12 32 12 289 12Benin 12 12 13 12 55 12 270 12Botswana 28 12 19 12 34 12 147 12BurkinaFaso 8 12 17 12 45 12 270 12Burundi 3 12 25 12 29 12 209 12Cameroon 18 12 30 12 44 12 657 12Chad 39 12 31 12 54 12 735 12Congo,Dem.Rep. 39 12 49 12 43 12 327 12
Congo,Rep. 118 12 2 12 57 12 605 12Coted'Ivoire 27 12 9 12 65 12 272 12EquatorialGuinea 58 12 23 12 46 12 492 12
Ethiopia 17 12 27 12 30 12 245 12Gabon 24 12 19 12 26 12 488 12Gambia,The 41 12 6 12 48 12 368 12Ghana 36 12 19 12 33 12 244 12Guinea-Bissau 7 12 16 12 46 12 218 12
Kenya 12 12 32 12 39 12 353 12Lesotho 32 12 12 12 25 12 366 12Madagascar 43 12 19 12 24 12 226 12Malawi 18 12 24 12 28 12 229 12Mali 18 12 12 12 50 12 270 12Mauritania 80 12 25 12 40 12 669 12Mozambique 92 12 31 12 37 12 226 12Namibia 7 12 18 12 33 12 327 12Niger 39 12 18 12 41 12 270 12Nigeria 16 12 28 12 52 12 815 12Rwanda 10 12 26 12 24 12 144 12Senegal 14 12 16 12 59 12 645 12SierraLeone 34 12 9 12 31 12 354 12SouthAfrica 41 12 23 12 9 12 235 12Sudan 25 12 14 12 42 12 180 12Swaziland 20 12 28 12 33 12 118 12Tanzania 31 12 20 12 48 12 177 12Togo 26 12 10 12 49 12 266 12Uganda 29 12 22 12 31 12 209 12Zambia 50 12 2 12 36 12 183 12
-0.0122 -0
.0128
-0.443
NTP PT LTP
-0.01-0.01
-0.51
0.37
0.5
0.455
NTP PT LTP LEX LY NR
-0.012 -0.01 -0.287
3.137
0.101
1.187
0.01
-0.064
-0.135
NTP PT LTP NR_NTP NR_PT NR_LTP PTNR NTPNR LPTNR
0.038
-0.071
-1.647
0.728
0.29
-0.9430.009
-0.011
0.243
NTPPT
LTPEX_NTP
EX_PTEX_LTP
PTEXNTPEX
LPTEX
-1.8
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.243-0.021
3.516
0.864
0.512
1.404 0.001-0.011-0.164
NTPPT
LTPLY_NTP
LY_PTLY_LTP
PTLYNTPLY
LPTLY
0
1
2
3
4
5
6
7
ConclusionsandPolicyImplications
ØTax Obligations general have adverse effect on stock ofFDI.ØNatural resource rich economies are likely to shieldthemselves from the adverse effect of profit tax.ØExpansion in output also reduces the adverse effect of profittax.ØNumber of Taxes and the time it takes to honour taxobligations are usually inimical to maintaining the stock ofFDI
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