Investment Incentives Summary

1. Definition
+ Investment Incentives: non-market benefits that are used to influence the behavior of
investors (WIR 2014)
+ Who offers? National, regional, and local governments
+ Classification and example (Table below): Based on the basis of the types of benefits
that are offered:
 Financial benefits
 Fiscal benefits (most important, especially in developing and transition economies)
 Regulatory benefits
+ Besides investment incentives, investment facilitation measures are also particularly
important for attracting investment
+ Objectives:
 Job creation
 Compensation for information asymmetries between the investor and the host
government, as well as for deficiencies in the investment climate, such as weak
infrastructure, underdeveloped human resources and administrative constraints.
 Tool to advance public policy objectives such as economic growth through foreign
investment or to make foreign affiliates in a country undertake activities regarded
as desirable
 Promote local development
+ Investment incentives may target specific industries, most important: the IT and
business service industry
+ Investment incentives constitute a significant share of newly adopted investment policy
measures that seek to create a more attractive investment climate for investors.
+ Policy recommendations:
- Linking investment incentives schemes to sustainable development goals could make
them a more effective policy tool to remedy market failures
- Good practices for government to follow when it comes to investment incentives:
(i) The rationale for investment incentives should derive explicitly from the country’s
development strategy, and their effectiveness should be fully assessed before adoption.
(ii) Incentives for specific industries should aim to ensure self-sustained viability so as to
avoid subsidizing nonviable industries at the expense of the economy
(iii) All incentives should be granted based on pre-determined, objective, clear and
transparent criteria, offered on a non-discriminatory basis, and carefully assessed in terms
of long-term costs and benefits prior to implementation.
(iv) The costs and benefits of incentives should be periodically reviewed and their
effectiveness in achieving the desired objectives thoroughly evaluated and monitored.