What kinds of policy instruments exist for governments to use and influence FDI?
Policies for host country.
- Encouraging inward FDI
By using incentives to foreign firms. The motivation is to gain resource transfer effects and employment effects.
- Restricting inward FDI
By applying ownership restraints and performance requirements.
Policies for home country.
- Encouraging outward FDI
Government-backed insurance programs, special funds and banks and relaxed restrictions.
- Restricting outward FDI
By limiting capital to maintain a safe balance of payment. Use of manipulated tax rules and prohibit national firms from FDI due to political reasons.