The relationship between MNE tax haven use and FDI into developing economies characterized by capital flight

Ali Ahmed, Chris Jones, Yama Temouri

    Research output: Contribution to journalArticlepeer-review

    9 Scopus citations

    Abstract

    The use of tax havens by multinationals is a pervasive activity in international business. However, we know little about the complementary relationship between tax haven use and foreign direct investment (FDI) in the developing world. Drawing on internalization theory, we develop a conceptual framework that explores this relationship and allows us to contribute to the literature on the determinants of tax haven use by developed-country multinationals. Using a large, firm-level data set, we test the model and find a strong positive association between tax haven use and FDI into countries characterized by low economic development and extreme levels of capital flight. This paper contributes to the literature by adding an important dimension to our understanding of the motives for which MNEs invest in tax havens and has important policy implications at both the domestic and the international level.

    Original languageBritish English
    Pages (from-to)1-30
    Number of pages30
    JournalTransnational Corporations
    Volume27
    Issue number2
    DOIs
    StatePublished - 31 Aug 2020

    Keywords

    • Capital flight
    • Economic development
    • Institutions
    • Tax havens
    • Wealth extraction

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