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Effect of corporate tax on sector specific foreign direct investment in Ghana

Author

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  • Obeng, Camara Kwasi
Abstract
There has been intense competition among developed and developing countries to attract foreign direct investment (FDI) in recent years. This competition for FDI is due to the fact that foreign capital creates employment and economic growth, augments the productive capital of a country, promotes transfer of technology and skills to the host country, and hence helps alleviate poverty, among other benefits. The competition, among other things, has taken the form of reduction in the corporate tax rate. Over the past two decades there has been a downward trend in corporate tax rate and an upward trend in FDI inflow in Ghana. Empirical evidence point to the fact FDI inflow to Ghana is not influenced by lower corporate tax rates. What is more, no study has explored quantitatively the effect of corporate tax on the inflow of FDI to the various sectors of the economy of Ghana. This study, therefore, examined the effect of corporate tax reduction on sector-specific FDI inflow in Ghana. Specifically, the study investigated the effect of corporate tax on FDI inflow into the mining sector, manufacturing sector, and service sector of the economy. Using the Johansen cointegration technique, the study found that corporate tax influences FDI inflow in the all the sectors. The study recommends that government should maintain a low corporate tax rate to attract more FDI.

Suggested Citation

  • Obeng, Camara Kwasi, 2014. "Effect of corporate tax on sector specific foreign direct investment in Ghana," MPRA Paper 58454, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58454
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    References listed on IDEAS

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    Cited by:

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    2. Samuel Antwi & Prince Yeboah Boateng & Awudu Salley, 2021. "?he effect of foreign direct investment on economic growth in Ghana: the role of exchange rate volatility," Bulletin of Applied Economics, Risk Market Journals, vol. 8(1), pages 81-96.
    3. Mercer-Blackman , Valerie & Camingue-Romance, Shiela, 2020. "The Impact of United States Tax Policies on Sectoral Foreign Direct Investment to Asia," ADB Economics Working Paper Series 628, Asian Development Bank.
    4. Seth Nana Kwame Appiah-Kubi & Karel Malec & Joseph Phiri & Mansoor Maitah & Zdeňka Gebeltová & Luboš Smutka & Vojtech Blazek & Kamil Maitah & Jitka Sirohi, 2021. "Impact of Tax Incentives on Foreign Direct Investment: Evidence from Africa," Sustainability, MDPI, vol. 13(15), pages 1-12, August.
    5. Seydou Coulibaly & Abdramane Camara, 2022. "The end of tax incentives in mining? Tax policy and mining foreign direct investment in Africa," African Development Review, African Development Bank, vol. 34(S1), pages 177-194, July.

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    More about this item

    Keywords

    Corporate tax; Foreign Direct Investment; Cointegration; Ghana;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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