Federalism and Foreign Direct Investment - An Empirical Analysis

Previous empirical studies suggest that decentralization, measured by the number of government layers, is associated with less foreign direct investment (FDI). With an improved dataset on tax autonomy sub-federal tiers, we present evidence fiscal decentralization (de facto) does not reduce FDI. If local governments can set their rates and bases independently, they attract more Analyzing 83,458 corporate cross-border acquisitions (CBA), between 148 source 187 host countries from 1997 to 2014, also find takeovers two increase size, cultural similarities common borders economies. Shared institutions such as membership in a customs union facilitate CBA. These results apply for high-income hosts but middle-income countries.