Empirical studies suggest that a country's natural resources, its recent growth performance, and its political and economic stability are the factors that attract foreign investors. While governments offer foreign investors a wide variety a incentives such as tax holidays, tax concessions, accelerated depreciation allowances, duty-free imports of capital goods, investment subsidies and guarantees against expropriation, most such investors regard incentives as volatile and transitory.
Eight countries - Brazil, Mexico, Singapore, Indonesia, Malaysia, Argentina, Venezuela and Hong Kong - account for more than half the stock of foreign investment in developing countries. Many of these countries do offer tax concessions, but it is unlikely that in the absence of a favourable economic and political climate for investment, tax concessions alone would be enough.