Article at a glance:

The truth about foreign direct investment in emerging markets

In their zeal to attract foreign investment, governments in emerging markets offer tax breaks and subsidies that can cost them millions. Simultaneously, they enforce rules to protect inefficient domestic companies and to ensure that local economies benefit from the new business. McKinsey research finds that these incentives and restrictions are unnecessary, ineffective, and, in some cases, counterproductive.

The take-away

Foreign investment benefits the local economy in almost all cases. Moreover, foreign investors say that government funds would be better used to improve the local infrastructure than to provide investment incentives.