Disciplining Investment Incentives: A Lost Cause?

Investment incentives rank among the most important policy instruments governments employ to influence the locational decisions of multinational firms. In the wake of the recent increase in locational competition and the growing impact of investment incentives and support measures for state-owned enterprises (SOEs), the need for enhanced disciplines on investment incentives has gained political and academic salience. This think piece explores the evolution of investment incentives from a development and rule-making perspective. It summarises the existing literature and examines current practices and recent trends in FDI flows and the use of various investment incentives. This is followed by a discussion of the reasons for the observed stalemate in attempts at disciplinary rule-making. The paper concludes by putting forth recommendations for data gathering and transparency that could further the move toward improved global governance founded on the increasing complementarities of trade, investment, and competition law and policy as the core pillars of a more open, inclusive, and just world economy.