The Influence of Fiscal Policy on Foreign Direct Investment Inflow: A Case Study of Ireland

Abstract

The level of influence from fiscal policy on foreign direct investment inflow (FDI) is controversial. This study investigates the relationship between foreign direct investments and corporate tax rates relative to other determinants within the European Union compared to Ireland. In this study, a panel regression analysis was employed to evaluate data from the United Nations Conference on Trade and Development (UNCTAD), World Bank and Organization for Economic Co-operation and Development (OECD) from 1990-2017. The result shows that there is a positive correlation between corporate tax rate, labor force, and foreign direct investment inflow in Ireland. Also, the corporate tax rate, inflation rate and Labor force rate have a significant impact on the FDI inflow in the economy growth of the Ireland. The understanding of the behavior of these factors can provide useful information to the Ireland government and policy makers as they seek to improve foreign direct investment inflow through building more infrastructure, increased market share, education quality and reformation in tax policy to encourage domestic investment and attract new investors to the Nation. The study recommends that firms seek financial gain through corporate tax rates as a leading determinant and aim to identify how corporate tax rates contrast in FDI levels between countries within the EU should acknowledge that other factors that can create a healthy business environment for sustainable growth for both in the investing MNEs and host nations.

Keywords: Foreign Direct Investment (FDI), Corporate Tax, Inflation, Labor Force rate, Trade Openness.

DOI: 10.7176/RJFA/12-2-04

Publication date: January 31^st 2021