Tax Haven FDI Amongst Multinational Enterprises (MNEs) From Least Developed Countries

Abstract

The last four decades have seen a steady rise in foreign direct investment (FDI) to become the main vehicle in driving the internationalisation of multinational enterprises (MNEs). Studies on FDI have largely concluded that MNEs are responsible for much of the global flows of FDI capital. Recent OECD (Organisation of Economic Co-operation and Development) reports show total world flow of FDI in 2021 stood at 1,815 billion US dollars – an increase of 88 percent on the previous year. However, much of these FDI flows are channelled through tax havens, allowing MNEs to sometimes avoid taxes altogether on these vast capital flows. Consequently, the role of tax havens in global trade have received growing interests in the international business (IB) literature. However, much of these research interests have concentrated on outward FDI from developed countries, leaving a void in the IB literature regarding the outward tax haven FDI practices amongst MNEs from developing countries.

This thesis presents the findings of three independent empirical investigations into outward tax haven FDI by MNEs from developing countries. Each of the three investigations utilised a firm-level panel dataset covering the period 2008-2018. The first investigation explored the impact of internal country-level risks on tax haven FDI. The second focused on corruption and its impact on the likelihood of state-owned MNEs (SO MNEs) to engage in tax haven FDI. The final investigation looked into the relationship between democratic accountability and tax haven FDI.

Analysis of the first investigation showed all three measures of internal country risks to be strongly and positively correlated with tax haven FDI, with heterogeneity seen across MNEs operating across different industries. Corruption was seen to have a positive effect on tax haven FDI amongst state-owned firms, whilst authoritarian governments had a positive effect on MNEs propensity to engage in tax haven FDI.

Date of Award	Mar 2023
Original language	English
Awarding Institution	Aston University
Supervisor	Chris Jones (Supervisor), Johan Rewilak (Supervisor) & Yama Temouri (Supervisor)