Title

Should Countries Engage in a Race to the Bottom? The Effect of Social Spending on FDI

Publication Date

Spring 4-2013

Journal

World Development

Volume

44

First Page

156

Last Page

164

Abstract

This paper examines the effect of social spending in developing countries on foreign direct investment (FDI). Existing studies on the race to the bottom in social services attempt to discern the extent to which FDI affects social expenditure. However, it remains an open question whether FDI is actually attracted to lower spending levels. We find no indication that FDI is repelled by social spending; indeed there is strong evidence that investment is associated with greater programmatic emphases on health and education. These findings have important implications for leaders seeking to attract investment and for those attempting to expand social programs.

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