FDI Intelligence: How to attract FDI in an era of high interest rates

Will more costly capital affect how governments compete for the declining pools of corporate FDI? Using Crux of Capitalism data on the weighted average cost of capital, we demonstrate that by the second quarter of 2022, the median WACC was rising in all four major economies: China, Germany, Japan, and the US. Greater costs of capital will raise hurdle rates for FDI. Fortunately, there are plenty of public policy tools beyond fiscal inducements that affect companies’ desire to invest via FDI. We conclude that a byproduct of the normalisation of monetary policy and fiscal space constraints is that greater differentiation in how states chase FDI can be expected.

22 Jan 2024 · Simon J. Evenett, Camilla Erencin, Felix Reitz