Abstract:
The competition to attract greenfield foreign direct investment (FDI) among
countries, due to its benefits, has taken the form of a reduction in the corporate tax
rate globally over the decade. Aiming to determine the tax effect in attracting new
investment into a country, the study focused on three objectives: the trend of
corporate income tax and greenfield FDI, the effect of corporate tax rate on
greenfield investment and the determinants of greenfield investment. In estimating
the objectives of the study, the fixed effect, random effect and system GMM
estimation techniques were employed on annual panel data of 19 selected African
countries from 2007 to 2016. The results of the study found that corporate income
tax rate had a declining trend over the past decade whiles greenfield FDI had a
fluctuating trend. Also, a reduction in corporate income tax rate attracts the inflow
of greenfield FDI. The last objective showed that market size, purchasing power,
inflation, country risk and agglomeration effect were important determinants of
greenfield investment. Based on the findings of the study, it is recommended that
there is the need for the governments of African countries to reduce corporate
income tax rate, institute policies to reduce inflation and promote a sound, violence
free and friendly environment that would attract greenfield investment inflows.
