Direct and Indirect Effects of Investment Incentives in Slovakia

Abstract

Countries trying to attract foreign direct investment often use various tools to influence the foreign investor’s allocation decision including public subsidies in the form of investment incentives. However, the effects associated with providing these incentives are often questioned, especially in light of the need to achieve at least a minimum level of attractiveness of the business environment. The primary aim of the present study was to examine the effects of investment incentives on foreign direct investment inflows (direct effect) and on selected macroeconomic variables (indirect effects) under the conditions in Slovakia. Findings showed that the preference of specific forms of investment incentives by the government of the Slovak Republic changed slightly in the observed period of 2002–2019. The results of the regression analysis further suggest that while financial incentives have a positive statistically significant direct effect on foreign direct investment inflows, in the case of fiscal incentives, this effect is the opposite. In terms of indirect effects of investment incentives, only a reduction in the unemployment rate through foreign direct investment was found. The study contributes to the literature by providing evidence on the effects of various forms of investment incentives and by offering some implications for investment promotion policy.

Effects of sectoral structure of foreign direct investment on economic development: The case of European developing countries

“…Moreover, the longterm effects of FDI on economic growth may depend on the institutional environment of the country in which companies operate. Bobenič-Hintošová et al (2021) believe that the institutional environment and political determination regarding investment incentives are insufficiently examined. European countries that have successfully gone through the transition process and that have transparent institutions represent an important assumption for foreign companies when making investment decisions (Buckley, 2018).…”

“…In the short-term, it can be expected that the influx of foreign companies will lead to a crowding-out effect, which reduces the productivity of local business actors. In the long-term, domestic companies should be able to adapt their production processes and improve productivity as a result of increased competition (Bitzer, & Görg, 2009).…”

What places bait investments? Urban management stance

“…These qualities, factors, and conditions, such as level of in-frastructure, characteristics of the labour, agglomeration economies, proximity of competitors, investment incentives and many others subsequently bait not less differentiated interest of individual investors (Ascani et al 2016;Massey 1995or Sucháček et al 2017. In contemporary turbulent, motley and quickly changing economic environment, which is moreover enriched by immense advancements in technologies, sharpened competition is symptomatic (Sucháček et al 2018;Turečková & Nevima 2017;Hlaváček 2013;Hlaváček & Koutský 2011;Bobenič Hintošová et al 2021;Štefko et al 2015). This applies to private and increasingly also public sector.…”

Inward FDI: Characterizations and Evaluation

“…Moreover, the governments of smaller countries may eventually become hostages to major foreign investors. In addition, the other effects expected from investment incentives may also not be met (for example, [36]), and many countries have reduced or even abolished investment incentives as a result of these circumstances [37].…”