Investment incentive is a government-implemented
incentive
In general, incentives are anything that persuade a person or organization to alter their behavior to produce the desired outcome. The laws of economists and of behavior state that higher incentives amount to greater levels of effort and therefo ...
policy aimed to encourage
investor
An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of pr ...
s into its
domestic market
A domestic market, also referred to as an internal market or domestic trading, is the supply and demand of goods, services, and securities within a single country. In domestic trading, a firm faces only one set of competitive, economic, and marke ...
or to promote expansion of existing businesses. Investment incentives encompass creating an environment that enables foreign businesses to operate profitably and decreases risks. They are widely used by
developing countries
A developing country is a sovereign state with a less-developed Secondary sector of the economy, industrial base and a lower Human Development Index (HDI) relative to developed countries. However, this definition is not universally agreed upon. ...
to attract investments. The incentives take form of "direct subsidies (investment grants) or corporate income tax credits (investment credit) that compensates the investors for their capital costs".
Scholars generally consider investment incentives to be inefficient, economically costly, and distortionary.
In
South Korea
South Korea, officially the Republic of Korea (ROK), is a country in East Asia. It constitutes the southern half of the Korea, Korean Peninsula and borders North Korea along the Korean Demilitarized Zone, with the Yellow Sea to the west and t ...
and
Taiwan
Taiwan, officially the Republic of China (ROC), is a country in East Asia. The main geography of Taiwan, island of Taiwan, also known as ''Formosa'', lies between the East China Sea, East and South China Seas in the northwestern Pacific Ocea ...
, over one-half of all foreign subsidiaries benefit from some form of investment incentive, which is more than most other developed countries (Japan 9%, Switzerland 12%, Canada and France 18%, Germany 20%, Belgium 26%, Italy 29%, UK 32%, Australia 37%).
Ha-Joon Chang
Ha-Joon Chang (; ; born 7 October 1963) is a South Korean economist and academic. Chang specialises in institutional economics and development, and lectured in economics at the University of Cambridge from 1990–2021 before becoming pro ...
. Pages 687-715 , Published online: 24 Jan 200
Regulation of Foreign Investment in Historical Perspective
See also
*
Foreign direct investment
A foreign direct investment (FDI) is an ownership stake in a company, made by a foreign investor, company, or government from another country. More specifically, it describes a controlling ownership an asset in one country by an entity based i ...
*
List of countries by FDI abroad
*
List of countries by received FDI
This is the list of countries by flows of received foreign direct investment (FDI). The list includes sovereign states and self-governing dependent territory, dependent territories based upon the International Organization for Standardization ...
*
Investment promotion agency
Further reading
* Jensen, N., & Malesky, E. (2018). ''Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain''. Cambridge: Cambridge University Press.
References
{{Authority control
Financial markets
Foreign direct investment
International macroeconomics
Incentives