No. 656 - The impact of restrictions on FDI

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by Marco Albori, Flavia Corneli, Valerio Nispi Landi and Alessandro SchiavoneNovember 2021

The paper assesses the impact that restrictions on inward foreign direct investments have on these capital flows. Restrictions are measured using the OECD Regulatory Restrictiveness Index database, which provides sectoral level information and takes into account both the type and the stringency of restrictions. The analysis employs panel regressions at the country-industry-year level on a sample of 17 OECD countries and 23 industries between 2012 and 2018.

Restrictions have a negative impact on inward foreign direct investments in the manufacturing and the service sectors, particularly when they limit foreign equity acquisitions. By contrast, the evidence suggests that measures motivated by national security considerations and those targeting the primary sector have not had a significant impact so far.

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