The impact of investment promotion on multinational production: Firm-level evidence
Journal of Development Economics · 2025 · Jerónimo Carballo、Ignacio Marra de Artiñano、Christian Volpe Martincus
Abstract
Countries make use of a wide range of policies to attract multinational firms, but identifying their effects is challenging. In this paper, we provide novel microeconometric evidence on the impacts of one of the most common of such policies: investment promotion. To do so, we combine firm-level data on both the location of multinational firms’ foreign affiliates and detailed service-specific information from Costa Rica’s investment promotion agency (IPA) over time. We find that IPA support significantly increases the probability that a multinational firm establishes its first affiliate in the country. We then show that this effect is particularly strong for information services and on multinational firms from home countries and in sectors potentially facing more severe information frictions.