Investment incentives are subsidies designed to affect the location of investments. This paper explores their size and impacts, as well as the regulation in place to control them.
It finds that data on size are fragmentary at best - though studies indicate that such investment incentives are substantial. In the United States, they may be as high as US$ 26 billion, and they are increasingly used in industrializing countries such as Brazil, China and India. They can have many impacts: wasting scarce fiscal resources when national and sub-national authorities enter bidding wars; redirecting investment from poorer to richer nations; and pressurizing poorer nations to make promises against the interests of their sustainable development. Although some positive experience with regional and national agreements can be identified, the global regulation of investment incentives seems to be a long way off. Current WTO rules do not appear to have much effect on most incentives. In any event, many common incentives, such as those to select different locations within the same country, have no impact on trade and could not conceivably be subject to WTO rules.