Does multinational firm take advantage of arbitrage opportunities when heterogeneity in transfer pricing regulations exist between home and host country? Using data on U.S. based multinational firms’ reinvestment earnings abroad as a proxy for FDI activity, provided by the BEA Survey of U.S. Direct Investment Abroad and the Balance of Payments Survey, we analyze the effect of transfer pricing regulation of multination firm FDI’s decision. The analysis results provide no empirical evidence that differences in transfer pricing regulation between home and host country affect FDI activity by U.S. based multinational firms. Host country’s specific characteristics such as market size, distant from the U.S., trade openness, as well as tax rates differential seem to be the primarily determinants of FDI activity.
Tran, Q.H. (2014, June). Does Heterogeneity in Transfer Pricing Regulation affect Foreign Direct Investment? Paper presented at The Seventh Vietnam Economist Annual Meeting, Ho Chi Minh City, Vietnam.
Virtual Commons Citation
Tran, Quoc Hung (2014). Does Heterogeneity in Transfer Pricing Regulation affect Foreign Direct Investment?. In Economics Faculty Publications. Paper 10.
Available at: http://vc.bridgew.edu/econ_fac/10