The Role of Investment Hubs in FDI, Economic Development and Trade

Foreign Direct Investment (FDI) is associated with higher trade openness and productivity in receiving economies, suggesting that FDI contributes positively to economic growth and development. ‘Investment hubs’ are jurisdictions that facilitate international investments through favorable tax and investment conditions. These hubs play a pivotal role in international investing – with five selected investment hubs (Ireland, Luxemburg Mauritius, the Netherlands and Singapore) accounting for one third of global FDI stocks.  Investment hubs support investments in both developed and developing economies. The latter group of countries is especially catered to by hubs close to developing economies such as Mauritius and Singapore. Should investors no longer be able to use certain investment hubs, total FDI is likely to decrease through FDI destruction and diversion. This will affect not just trade and growth, but also tax revenues.

The study
Commissioned by the Investment Facilitation Forum (IFF), SEO Amsterdam Economics has studied the role of investment hubs in global Foreign Direct Investment (FDI) and the importance of FDI for international trade and economic development. At the request of IFF, particular attention has been given to Ireland, Luxembourg, Mauritius, the Netherlands, and Singapore as investment hubs and to developing economies as FDI recipients. 

A review of the academic and policy literature shed light on the importance of FDI for international trade and growth and development. The literature also informed a ‘thought experiment’ that considered what would happen if investors could no longer make use of certain hubs. The importance of hubs for global FDI was established through analysis of IMF and OECD data, as well as data from various national statistical agencies.



Category: 2018, Ward Rougoor, Joost Witteman, Johannes Hers, Competition & Innovation, Financial Markets & Finance