Foreign direct investment (FDI) is widely believed to stimulate development,2 yet the range of policies that can enhance the infl ow of FDI in the short run is limited. As the previous chapter shows, economic factors such as market size, openness, economic growth and political institutions are the most important determinants of FDI. Although policy can affect these dimensions, it usually takes time for changes to materialize. Therefore, many policy-makers have increasingly turned towards alternative solutions that may improve the attractiveness of their countries in the short run. These include the adoption of reduced tax regimes for foreign companies, investment promotion activities and international investment agreements (IIAs).