It is often contended that the tax factor alone does not attract foreign direct investment to a particular country. However, taxes may be much more important factors when a firm decides to invest in a specific region, but it still has to choose among several countries in the region. Theoretically, tax policies of both the host country and the home country can have a significant impact on FDI flow. However, empirically, there is no overwhelming evidence that tax measures are effective in attracting FDI. Moreover, the role played by the tax policies of competing host countries on FDI in any host country should be important but has not been addressed in the literature. The purpose of this research is to investigate the role of the home country, the host country, and the competing host country's tax systems on FDI in four developing countries, Hong Kong, Malaysia, Singapore, and Taiwan.; The theoretical model in this dissertation assumes that foreign direct investment is undertaken by a multiple-plant monopolist. The profit maximization of the firm requires marginal cost in each host country to be equal to the marginal revenue of the output as a whole. By Shephard's Lemma, a demand for foreign capital is derived. The basic paradigm of this model is that host countries are interdependent in the sense that production costs, including taxes in other host countries, affect the inward FDI of a particular host country.; The estimating model employs a seemingly unrelated and first-difference regression model. The results reinforce previous findings in the literature on the role of home country taxation in determining FDI flows. The results also show that the alternative host country's tax system can play an important role on FDI into competing host countries. Implications are drawn for policy makers in developing countries who often use tax incentive programs to encourage inward FDI.
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