THE EFFECT OF CORPORATE TAX POLICY ON FOREIGN DIRECT INVESTMENT: EMPIRICAL EVIDENCE FROM ASIAN COUNTRIES

Abstract

The phenomenon of Corporate Tax Rate (CTR) reduction to attract Foreign Direct Investment (FDI) has been an interesting subject given the lack of consensus from empirical studies. This study aims to provide empirical evidence on the relationship between CTR and FDI, and examine factors that influence FDI inflows. Using data for 28 Asian countries from 1999 to 2014, we find that CTR has a significant negative effect on FDI inflows. FDI inflows increase by 4.38% due to a 1% CTR reduction. We also find that other economic factors, such as economic openness, market size, and exchange rates play an important role in attracting FDI inflows.