Few subjects polarize public opinion as much as the role of globalization in developing countries. Foreign direct investment, its advocates note, boosts their economic performance by endowing them with new skills, new technologies, and new jobs—all of which increase their standard of living. Detractors contend that corporations too often demand special treatment for their export businesses, push back on environmental regulations, seek to avoid taxes, and resist more costly labor market rules in the countries where they invest.

Certainly, not every corporation makes its foreign direct investment contingent on tax breaks, incentives, and regulatory exemptions. But those that negotiate hard with the governments of developing countries may want to rethink that approach. Instead of seeking concessions, these companies would be better off encouraging rational tax systems, equitable social policies, sustainable environmental regulations, balanced controls on short-term capital movements, and transparent rules. There are three good reasons to do so.

First, though many of the tax breaks, incentives, and regulatory exemptions global corporations negotiate may provide a one-off boost to performance, they actually lower the long-term productivity of investments. Corporate taxes are much easier to collect than the personal income tax, so they are often critical to the public revenues...